The Brookings Institution has another fantastic report: Addressing Ohio’s Foreclosure Crisis. The research institution offers 10 ways to help prevent foreclosure and it’s certainly applicable outside the Buckeye State.
Many of their recommendations are fees and regulations that level the playing field between borrows and lenders. This is, in my opinion, a particularly good point they make:
“Simple fairness dictates that where a lender (or anyone else) takes actions that impose significant social and economic costs on innocent third parties, be they neighboring homeowners or local governments, they should not get a free ride at cost to the public—they should bear the burden of those costs, which are known as externalities.”
Here’s a short review:
#1. Get borrowers better information about their options, and
greater access to counseling, emergency assistance and loan modification opportunities.
Among the recommendations: Impose a $1,000 fee on all foreclosure filings (or certain categories of foreclosure filings, such as subprime loans), with the proceeds to be used principally to fund foreclosure prevention counseling programs and emergency assistance through the Home Rescue Fund.
(This is one I particularly like because it alters the incentives for lenders against foreclosure. Because apparently, the near-worthlessness of many Cleveland/Detroit/Youngstown/Buffalo-area homes is not disincentive enough to seize property after property.)
#3. Create a fair foreclosure process, with ample protection
for borrowers and opportunity to negotiate with creditors.
Brookings recommends rewriting the laws governing borrowing to provide more protections for consumers.
“The foreclosure process is an extreme example of what is known as an “asymmetrical relationship, where the distribution of both available resources and potential costs are
highly uneven. Creditors have far more resources to pursue foreclosure than most debtors have to defend against it, while the consequences of failure to the debtor—loss of her
home, her assets, her credit rating, and often her health and family stability—vastly exceed the consequences of failure to foreclose that may be borne by the creditor.”
Here is another sub-recommendation I like: Require plaintiff to complete a mortgage origination fraud “screen”; that is, a series of questions about the origination of the mortgage being foreclosed, at the commencement of foreclosure proceedings, in order to enable the court to evaluate the possibility that fraud or misrepresentation occurred in the course of originating the mortgage.
Recommendation 11: Require that the entity initiating a foreclosure on a residential property be legally responsible for maintenance of the property in the event that the title-holder vacates the premises at any point after the initial foreclosure filing.
Recommendation 13: Eliminate foreclosure as legal grounds for eviction of a sitting
tenant who is otherwise in compliance with her legal obligations as a tenant.
Under current practice and law in Ohio, when a tenant-occupied residential property is foreclosed, eviction of the former owner’s tenant is automatic and all but immediate. Where the tenant is a responsible one, this makes no sense. A rent-paying tenant, who is in no manner responsible for the owner’s default, loses her home. An occupied property is rendered vacant, and in most cases, immediately begins to lose value and devalue
neighboring properties. The lender, who is now the new owner, suffers from the loss of the property’s value, and loses the opportunity to gain at least some cash flow from the
property while seeking a new buyer. Tenants should be allowed to remain in their home at least until expiration of their lease.