UPDATE – Sen. Steve Pierce told the Arizona Capitol Times that his foreclosure bill will have to be fixed, either in special session or next year when the Legislature begins the regular session. Pierce and stakeholders met this afternoon (July 28) to discuss changes to the legislation.
The hurried pace in the final weeks of the regular session has produced what lawmakers have seized upon as a prime example of unintended consequences brought on by quickly passed legislation.
Now, the state’s real estate industry is engaged in a time-sensitive mission to undo legislation that they claim unfairly benefits bankers at the expense of homebuyers facing foreclosure.
S1271, a strike-everything amendment by Prescott Republican Senator Steve Pierce, limits economic protections for owners of homes in foreclosure. It was signed into law on July 10 and is set to take effect on Sept. 30.
The Realtors and the Arizona Bankers Association will meet today with Pierce today to discuss the future of the bill. Some lawmakers, including Pierce, say changes may be necessary.
The law will require homeowners to live for at least six months in the home facing foreclosure to qualify for traditional protections from lending institutions that incur financial losses on the sales of foreclosed homes.
If the six-month time period burden is not met under the terms of S1271, lenders could force homeowners to cover losses when the house is resold for less than the full value of their mortgage. But the real estate and banking lobbies have different impressions on what the bill will accomplish.
Farley has asked Gov. Jan Brewer to amend her July call for special session to include the prerogative of changing or repealing S1271, but so far, Brewer’s office has not responded formally.
The realtors’ organization was silent during the bill’s passing. But Farley says the banking association was less than forthcoming about the bill’s effects, which he said could greatly harm the state’s real estate market and economy by removing incentives for lenders to work with borrowers in hopes of avoiding foreclosures.
Without the option of enjoying the limited economic protection during foreclosure, many owners will simply opt to declare bankruptcy, he said, adding banks already have the ability to foreclose on homes within an “expedited” period of 90 days within the time of default.
“We’re seeking a repeal,” Farley said. “We don’t believe this was articulated accurately in committee and the damages are significant to those that signed loan documents under the rules and terms that they signed under.”
But, Tanya Wheeless, president of the Arizona Bankers Association, said the new law doesn’t mean lenders will choose foreclosure over negotiation. Those claims, she said, have not proven true in other states.
The bill, she said, remedies an existing problem: Banks are unfairly being held responsible to foot the bill when speculative home buyers are cutting their financial losses caused by a downturn in home values by allowing their homes to be foreclosed upon.
That routinely occurs, industry representatives said, when investors avoid the reach of banks by moving into a home for several weeks, or even several days, in a false display that the home is a primary residence.
Wheeless said the bill is also limited and straightforward by targeting investors of multiple homes, and not owners struggling to keep up with a single mortgage.
“If it is not your home and it is an investment then it is not that dissimilar from going to Vegas and taking a gamble,” she said. “You made a gamble, and you don’t like the results.”
Pierce said the banking industry was forthcoming when lobbying for the bill. And he said the industry clearly has been harmed, particularly smaller community banks that were damaged and left unable to receive funding under the federal Troubled Asset Relief Program.
Still, Pierce said he has concerns that banks will simply wait until the bill’s enactment date of Sept. 30 to begin a new round of foreclosure processing. And he said it was not his intent to provide extra protections for large banks that received aid from the federal government.
“The feds told all the small banks in Arizona that they were irrelevant; that the only ones that really counted were the major banks like B of A (Bank of America), Wells (Wells Fargo,” he said.
Wheeless said she believed the TARP funding issue dividing smaller and larger banks is irrelevant to the issue at hand, as larger banks received money as an investment and are currently paying interest, which to date has reached $6 billion.
Sen. Rebecca Rios, a Democrat from Apache Junction, said she viewed the disagreement between the realtors and bankers as proof that the hurried time frame to pass legislation at the end of the session has contributed to unintended consequences.
“We’re looking at a Legislature that did literally nothing for six months, and during the last three weeks of the session fast-tracked through some 400 bills,” she said. “Inevitably you will have unintended consequences and that is what occurred with this legislation.”
Senate President Bob Burns said some sort of a solution must be sought, although he said there might be other ways to address the problem other than amending the special session.
“We realize there is a problem and we have to do something to solve it,” he said.