Bill addressing foreclosure-prevention options under fire

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An Indiana law that has helped thousands of residents at risk of foreclosure keep their homes could be "gutted" under a bill being considered by state lawmakers, housing advocates say.

The bill introduced by Sen. James Merritt, R-Indianapolis, focuses on the tax-sale process, and a vacant and abandoned properties registry. But an amendment by Sen. Karen Tallian, D-Portage, deals with the 2010 mortgage settlement law that requires lenders to hold conferences with distressed homeowners.

Tallian told The Indianapolis Star that her amendment was meant to reconcile state law on foreclosure rights with a newer federal law that takes a different approach. Under state law, banks must offer a court-supervised settlement conference after filing a foreclose notice in an attempt to find a solution to let a homeowner keep his or her house.

The federal Dodd-Frank Wall Street Reform and Consumer Protection Act requires big banks to contact homeowners in advance of a foreclosure and notify them of their loan-modification options. It also bars them from filing for foreclosure unless the borrower is 120 days or more delinquent.

Opponents of Tallian's amendment say that, as originally written, it would have eliminated a homeowner's right to have a settlement conference with the bank, overseen by a judge.

"It essentially gutted the entire law," said Chase Haller, an attorney for the Neighborhood Christian Legal Clinic.

A revised amendment restores the court-supervised settlement conferences, but Tallian said they wouldn't apply to big banks that are subject to federal regulations under the Dodd-Frank law.

The Indiana Mortgage Bankers Association supports the language, saying the federal rules are more comprehensive than state ones and that lenders shouldn't have to deal with two different systems.

Housing advocates say the bill as revised exempts almost all Indiana mortgage lenders from the state law.

"Basically, no one will be left," said University of Notre Dame law professor Judith Fox, who specializes in foreclosure law. "This would effectively eliminate the program and all the protections for Indiana homeowners."

Indiana Attorney General Greg Zoeller has urged lawmakers to drop the proposal, which passed the Senate in February.

"The worst of the foreclosures may be behind us, but that's no reason to grow complacent and take away this procedure that provides a measure of fairness for distressed homeowners in dire financial situations," Zoeller said in a written statement. "It is imperative that lawmakers act in the best interest of their homeowner-constituents and do the right thing to preserve this important and effective tool for homeowners."

Tallian and Merritt said they would take another look at the language.

"If what we have is incorrect or wrong, we will amend it out of the bill," Merritt said. "I'm very open to getting this right."

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