Banking Industry Torpedoing Foreclosure Bill

Thursday, June 06, 2013

Stephen Beale, GoLocalProv Contributor

 

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The banking industry is pulling out all the stops to squash a proposed new state law that would protect tenants from automatic eviction, along with potential homelessness, after a bank or other mortgage lender forecloses on their landlord, housing advocates are warning.

“In current practice, foreclosing banks evict all residents, including good, rent-paying tenants, from these homes,” said Chris Rotondo, a staff organizer for Direct Action for Rights and Equality, which has been pushing for the law.

The proposed law would require that banks and other lenders who foreclose on a rental property follow the same rules as other landlords, accepting rent from tenants and evicting them only when there is just cause to do so. (Click here to read the House version and here for the Senate version.)

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“Essentially what the bill hopes to do is stop … senseless eviction of tenants who are otherwise in good standing,” said Providence City Councilman Luis Aponte.

But the banking industry has mounted a protracted battle against the law and now is waging a last-ditch attempt to torpedo compromise legislation that has been hashed out in this session, according to Rotondo and the sponsors of the measure. “It’s the haves against those that have the least,” said Sen. Harold Metts, D-Providence, the sponsor of the Senate version of the bill.

The issue affects thousands of renters throughout Rhode Island. Between 2009 and 2012, there were 2,621 multi-family foreclosures in the state. That affected about 7,400 households, according to HousingWorksRI.

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Metts introduced the bill after one of his constituents was forced to move four times, after the landlord for each of her apartments fell behind on the mortgage.

“We see the faces. It’s more than the numbers,” Metts said.

The issue came close to home for the House sponsor, Rep. Jay Edwards, after one of his Tiverton neighbors was forcibly evicted after the home he rented was foreclosed. The renter, Edwards recalled, tried to pay rent directly to the bank, which refused to accept it. “I said, ‘That just is not right,’” Edwards said, a Democrat whose district also encompasses Portsmouth.

State senator: lobbyist had more influence than me

Backers of the measure said they are facing across-the-board opposition from the banking and mortgage industry. That includes Bank of America, the Rhode Island Bankers Association, the Rhode Island Mortgage Bankers Association, and the Credit Union of Association of Rhode Island, Rotondo said. Edwards said Bank of America has been the largest individual opposition leader. (Several industry lobbyists did not respond to messages seeking comment.)

When Edwards first proposed the measure in 2009, the then-freshman state rep said his inexperience in writing bills made it an easy defeat for opponents. But a revised version fared no better in 2010. When at last the House passed the measure in 2011, the banking industry scuttled it on the Senate side, killing it before it left the Judiciary Committee, according to Edwards. The bill met with a similar fate last year.

“I felt that the lobbyists had more influence than an elected official,” Metts said. “I really felt that way and I felt that I had let my constituents down.”

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But Metts did not walk away empty handed last year. The Senate decided to set up a commission to dive into the issue and forge a compromise. Metts sat on the commission, as did DARE, the head of the Rhode Island Bankers Association, and the board chair for the Credit Union Association of Rhode Island.

The commission, which held meetings this past spring, came up with a compromise bill. Metts and Rotondo said their side made several key concessions, including an exemption for any multi-family buildings with more than four units and a rule requiring that landlords notify their tenants of a potential foreclosure. But the banking industry has rebuffed the compromise bill.

“Right now, we’re at an impasse,” Metts said.

Banks don’t want landlord rules to apply to them

Efforts at a compromise have stalled over three sticking points, according to Rotondo and Metts. Bankers want the right to evict tenants without just cause after 120 days. The bankers do not want to be subject to the Residential Landlord and Tenant Act, which would effectively bind them to the same rules as other landlords until the foreclosed property is sold. And, they want the measure to expire by December 31, 2014.

Now the banking industry has drafted a substitute bill that incorporates these changes. That substitute bill is being shopped around to the Senate leadership in an effort to stymie the compromise bill, Rotondo said.

And he worries that banking lobbyists are making the same efforts to woo the House leadership.

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“On Thursday, May 30, DARE members were stunned to discover … that House leadership proposed an altered bill hours before it was scheduled for consideration in the House Judiciary committee,” Rotondo said. “The changes included some of those same changes the industry lobbyists wanted to make to the bill during the commission, to which DARE, affected community members, and our sponsors disagreed.”

At that May 30 meeting, the House Judiciary recommended that the original bill be “held for further study,” a sort of legislative limbo where many bills go to die. The Senate Judiciary Committee did the same with the bill on May 9.

Spokesmen for both Senate President Teresa Paiva Weed and House Speaker Gordon Fox did not directly comment on the issue yesterday.  Fox spokesman Larry Berman said the substitute bill is “currently being discussed” and “has not yet been finalized.” Greg Pare, the spokesman for Paiva Weed, said that the Senate version of the bill also has not been completed.

DARE is scheduled to personally make its case in a private meeting with the Senate President next week, Rotondo said.

“If House Speaker Gordon Fox and Senate President Teresa Paiva Weed support a bill with the industry’s proposed changes, despite DARE and the bill sponsors’ determined efforts to reach a viable compromise that would protect RI residents and the economy, they will be choosing the desires of banks over people’s needs,” Rotondo said.

Battling urban blight

Edwards said he thought the law would be all-around win for all involved: banks would collect income on foreclosed properties, cities would continue to receive taxes on the properties, and neighborhoods are spared the scourge of vandalism-prone vacant houses by keeping them occupied. “You don’t have a vacant hulk that is open to vandalism and is a blight to the other properties in the neighborhood,” Edwards said.

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Besides keeping properties from becoming targets for vandals and criminal activity, Aponte said the bill also spares families a sudden eviction. “It is usually disruptive for kids and families when it need not be,” Aponte said. He said the Providence City Council had both goals in mind when it passed a resolution earlier this year endorsing the legislation.

Then there is the inevitable economic toll that vacant foreclosed lots wreak, dragging down values of other homes in the neighborhood, Edwards noted.

Bankers don’t want to be landlords

Efforts were made to reach out to two of the leading lobbyists for the banking industry—William Farrell, an attorney representing the Rhode Island Bankers Association and Bank of America, and Richard Beretta, for the Credit Union Association of Rhode Island, according to state records. They did not respond to messages seeking comment.

Rotondo said bankers have warned that the new requirements would lead to higher mortgage lending rates, adversely affecting consumers. But Edwards said his legislation is modeled on similar laws that have been successfully implemented in Massachusetts and New Jersey. “This is not something that has gutted the mortgage industry,” he said.

“The bottom line for them is they don’t want to be landlords, plain and simple,” Metts said.

Stephen Beale can be reached at [email protected]. Follow him on Twitter @bealenews

 

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