H. R. 3566
IN THE HOUSE OF REPRESENTATIVES
December 6, 2011
Mr. Towns (for himself and Mr. Gutierrez) introduced the following bill; which was referred to the Committee on the Judiciary
To ensure uniformity and fairness in deficiency judgments arising from foreclosures on mortgages for single family homes.
This Act may be cited as the
Fairness in Foreclosures Act of
Requirements for deficiency judgments
No action for a deficiency judgment arising from an obligation under a residential mortgage may be brought except in accordance with this Act.
An action for a deficiency judgment arising from an obligation under a residential mortgage may be brought only during whichever of the following periods terminates earlier:
The 12-month period that begins upon the date of the foreclosure sale for the residential property securing the obligation under the mortgage.
Such period as may be provided under the applicable State law for bringing an action for such a deficiency judgment.
Satisfaction of mortgage obligation
In the case of any foreclosure on a residential mortgage, if no action for a deficiency judgment arising from the obligation under the mortgage is brought during the period provided in subsection (a), the proceeds of any foreclosure sale conducted with respect to the residential property securing repayment of the obligation owed under the mortgage, regardless of amount, shall be deemed to be in full satisfaction of the obligation under the mortgage and no action to recover a deficiency in such amount may be brought after the expiration of such period.
Requirement of commercially reasonable sale
No deficiency judgment arising from an obligation under a residential mortgage may be issued unless the court has determined that the foreclosure sale for the property securing repayment of the obligation under the mortgage was conducted in accordance with the following requirements:
The sale was conducted in a recognized market in the manner that is usual with respect to such market.
The sale price of the property was current in a recognized market at the time of disposition.
The sale was otherwise in conformity with reasonable commercial practices among dealers in property of the type sold.
A party adversely affected by a deficiency judgment may submit to the court evidence contradicting the commercial reasonableness of the foreclosure sale and of any costs incurred in such sale.
The total amount recovered by a plaintiff in a deficiency judgment arising from an obligation under a residential mortgage shall be the amount equal to—
the sum of—
the amount of obligation owed under the mortgage, as of the date of the foreclosure sale for the property, as determined by the court, with interest on such amount from the date of the foreclosure sale at the rate provided in the mortgage or related contract;
if applicable, the amount owing on all prior mortgages, liens, and encumbrances, with interest; and
any reasonable costs for, and disbursements of, the action for the deficiency judgment; less
the greater of—
the fair market value of the property, as determined by an independent appraisal completed during either of 10-day periods that begin and end upon the date of the foreclosure sale; or
the amount of the sale price of the property at the foreclosure sale.
Determination of fair market value
A party adversely affected by a deficiency judgment may submit to the court evidence relevant to establishing the fair market value of the property for purposes of subsection (a)(2)(A).
Prohibitions on deficiency judgments
No action for a deficiency judgment arising from the obligation under a residential mortgage may be brought if the terms of the mortgage prohibit the recovery of any amount of the obligation due under the mortgage after—
the residential property securing repayment of such obligation is sold at foreclosure sale; or
the mortgage is foreclosed in the manner provided under the law of the State in which the property is located.
In the case of any residential mortgage under which the mortgagor is a member of a low-income family, the following shall apply:
Prohibition on action
No action may be brought for a deficiency judgment arising from the obligation under such residential mortgage.
Prohibition on reporting deficiency to credit agencies
A deficiency in recovery, from a foreclosure sale for the property securing repayment of the obligation due under the mortgage, of the full amount of the obligation may not be reported to any consumer reporting agency (as such term is defined in section 603 of the Fair Credit Reporting Act (15 U.S.C. 1681a)) or disclosed to any person other than the mortgagor or a personal representative of the mortgagor, unless such disclosure is otherwise required by law.
For purposes of this Act, the following definitions shall apply:
The term deficiency judgment means a judgment, lien, or court order, as provided for under State law, for recovery in whole or in part, as determined by a court as just and equitable, after a foreclosure or foreclosure sale of the property securing repayment of the obligation owed under a residential mortgage, of the portion of the obligation that remains unsatisfied after application of the proceeds of such sale to the obligation.
The term foreclosure sale means, with respect to the residential property securing repayment of the obligation under a residential mortgage, the sale of the property pursuant to foreclosure on the mortgage, whether judicial or nonjudicial, undertaken in accordance with the laws of the State in which the property is located, under which the proceeds of such sale are applied to such obligation.
The term low-income family has the meaning given such term in section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 1437a(b)).
The term mortgage means a deed of trust, mortgage, deed to secure debt, security agreement, or any other form of instrument under which any property (real, personal, or mixed), or any interest in property (including leaseholds, life estates, reversionary interests, and any other estates under applicable State law), is conveyed in trust, mortgaged, encumbered, pledged, or otherwise rendered subject to a lien for the purpose of securing the payment of money or the performance of an obligation.
Condominiums and cooperatives
Such term includes a first mortgage given to secure—
the unpaid purchase price of a fee interest in, or a long-term leasehold interest in, a one-family unit in a multifamily project, including a project in which the dwelling units are attached or are manufactured housing units, semi-detached, or detached, and an undivided interest in the common areas and facilities that serve the project; or
repayment of a loan made to finance the purchase of stock or membership in a cooperative housing corporation the permanent occupancy of dwelling units of which is restricted to members of such corporation, where the purchase of such stock or membership entitles the purchaser to the permanent occupancy of one of such units.
The term residential mortgage means a mortgage the primary purpose of which is the purchase or financing of a permanent 1- to 4-family dwelling that is used as the principal residence of the mortgagor.
A determination of whether a mortgage is a residential mortgage for purposes of this Act shall be made based on the purpose of the mortgage as of the time the loan was made, as determined based upon information obtained during the application process for the mortgage.
Applicability and preemption
This Act shall apply with respect to any action for a deficiency judgment arising from an obligation under a residential mortgage brought in any State or Federal court.
The provisions of this Act shall preempt any State law to the extent that such law is inconsistent with the limitations contained in such provisions. The provisions of this Act shall not preempt any State law that provides for defenses or places limitations on a person’s liability in addition to those contained in this Act or otherwise imposes greater restrictions that those provided in this Act.