This morning we had the hearing on my annual bill on foreclosure reform, SB 734, which makes it illegal to obtain a foreclosure in Virginia based on a forged or fraudulent document. After testimony from proponents and opponents alike, the bill passed on a vote of 10-5.
The bill arises from the sordid history of “robo-signing,” which led to the illegal eviction of thousands of homeowners in Virginia alone between 2007-2010. Many of these homeowners had legally entered loan modifications with their mortgage servicer and were entitled to stay in their homes. Instead, they were put on the street.
Last year, there was a national settlement in which banks agreed to pay $26 billion (with a “b”) in compensation to homeowners. Virginia shared in that settlement to the tune of about $480 million. Yet, ironically, we did nothing to change our laws so as to avoid this debacle in the future.
My bill simply establishes a right of action for homeowners that can prove (i) the use of a false document and (ii) that it caused them an “injury.” Note that a homeowner that hasn’t paid his mortgage or a squatter illegally residing in the house are not “injured” because they have no legal right to be there. Instead, this bill is focused on protecting people that are legally entitled to reside.
A key piece of this bill is the ability to recover attorney’s fees. Right now, the banks can recover their fees from the Deed of Trust which gives the lender unilateral rights to recover costs from any legal proceeding. But what about consumers who have no similar right? Normally, they are protected by the Virginia Consumer Protection Act, however, banks are exempted from that Act.
Therefore, consumers are literally left with no remedy in these fraudulent foreclosure cases, even if they are legally entitled to stay in the house!
Last year, the bill went to the House Courts committee where it was “laid on the table” on an (unrecorded) party-line vote, but only after one vote expressed concern that banks were exempted from the Consumer Protection Act. Needless to say, that status hasn’t changed.
So perhaps his vote will change.