"HB 470 is dead," the text said. As an attorney who has represented hundreds of homeowners since the foreclosure crisis struck Kentucky in 2008, I breathed a sigh of relief.
House Bill 470, likely to be back in next legislative session in some version, would have removed the protection of judicial oversight from the majority of foreclosures.
When the bill was filed, consumers, consumer advocates (led by the Kentucky Equal Justice Center), and consumer attorneys across Kentucky mobilized to explain to legislators why removing judges from the foreclosure process would be so harmful to homeowners facing foreclosure.
So, I was surprised to see Ballard Cassady, president and CEO of the Kentucky Bankers Association, claim that "Kentucky bankers are the only ones concerned with protecting consumers." This statement is as self-absorbed as HB 470 was self-serving for the mortgage servicing industry.
While KBA claims that it would allow a homeowner to opt back into the tried-and-true judicial foreclosure process, the reality is that under HB 470 the vast majority of homeowners would unwittingly surrender valuable legal rights because they are not familiar with civil litigation and never find an attorney to represent them.
Setting the default process as nonjudicial simply serves to fast-track foreclosures by automatically surrendering consumers' valuable legal rights for the exclusive benefit of the banking industry. Judicial oversight is an important safeguard against foreclosure abuse and helps protect the community from unnecessary foreclosures.
For many homeowners, a foreclosure is the first time they've ever been sued. Now, their house is on the line. Because the information is public, scammers begin contacting homeowners to offer loan modification "help" and even legal representation in exchange for thousands of precious dollars.
Meanwhile, the loan-servicing company prosecuting the foreclosure often advises homeowners not to worry because they are working on a loan modification or some other alternative to foreclosure.
Combine a naive homeowner with predatory fraudsters and misinformation from the loan-servicing company and you have a perfect environment to perpetrate foreclosure abuses. For many homeowners, a judge is the first person they will meet in the foreclosure process who can be trusted.
Indeed, loan servicing companies have shown that they need more judicial oversight, not less. Attorneys general from across the 50 states have joined together to successfully sue mortgage servicing firms for just the kind of foreclosure abuse HB 470 would have kept from a prying judge's eyes: robo-signing, forged documents, systemically providing homeowners misinformation, repeatedly failing to adhere to the requirements of federal loan-modification programs.
With HB 470, the fox had gone to Frankfort and asked for the keys to the henhouse.
If the KBA truly cares about avoiding unnecessary foreclosure costs and stemming the tide of vacant and abandoned property, a good start would be encouraging its members to invest in systems to quickly, accurately and fairly evaluate homeowners for loan modifications and other alternatives to foreclosure.
Homeowners facing foreclosure in Kentucky already face an uphill fight to preserve home ownership or pursue other, less devastating options. HB 470 would have taken that hill and turned it into a cliff off which many of the most financially fragile families would fall. HB 470 would lead to more bank-owned vacant property, more displaced families and lower home ownership rates across the commonwealth.
If you believe the KBA's claim that it supported HB 470 because it benefits consumers, I have some AAA-rated mortgage-backed securities to sell you.