Bill Would Change Georgia's Mortgage Law

The financial and economic collapse that began in earnest nearly five years ago has certainly dominated the headlines. One of the major symptoms has been a soaring rate of foreclosures that reached levels most Americans had never seen. Certainly anyone born after 1930 would have little to no recollection of when the economy was in such bad shape.

Even as we begin a turnaround, the crisis continues to spur many lawmakers to call for further government regulation of the financial institutions that have taken much of the blame. This week has been no exception as Rep. Dar’shun Kendrick, D-Lithonia, introduced House Bill 781, which seeks to redefine the term mortgage in Georgia and change the current law to a system of judicial foreclosure.

The summary: “A Bill to be entitled an Act to amend Article 7 of Chapter 14 of Title 44 of the Official Code of Georgia Annotated, relating to foreclosure, so as to provide that after December 31, 2012, any document or instrument made for the purpose of securing the payment of money for real property shall be deemed to be a mortgage; to provide that a court shall not enter a deficiency decree; to provide that no law suit to recover deficiency shall be maintained; to provide for related matters; to provide an effective date; to repeal conflicting laws; and for other purposes.”

The current law is one of non-judicial foreclosure, meaning that a mortgage lender does not have to sue a borrower in court in order to foreclose on the property. Lenders can also seek deficiency judgments against the defaulting borrower if the lender’s sale of the property realizes less than what is owed at the time of foreclosure.

I asked Kendrick to explain why this legislation is necessary:

"I introduced this bill after going on a listening tour in my district which includes DeKalb and Rockdale County and hearing the same message: ‘We need relief from foreclosures. The bank has the information wrong or are unwilling to work with me,’” Kendrick said. “For me, working families’ most treasured assets should go through a judicial process like most proceedings when property is being taken away.”

Public opinion varies but most agree that this bill would be a detriment to the homeowner and would hopelessly clog the court system with unnecessary lawsuits.

Paulding County Real Estate Attorney Elizabeth Williams says, “Under the non-judicial foreclosure process, lenders are allowing borrowers to get several months behind in the hopes that the borrower will be able to get back on track with their payments. They know if the borrower is not able to catch up, the foreclosure process does not take very long. Under the judicial foreclosure process, lenders would potentially be more likely to sue the borrower after only a few missed payments due to the fact that the foreclosure process takes much longer. Lenders may also increase their qualification requirements in a judicial foreclosure state.”

Some of your neighbors offered their opinions as well. Thomas B. in Hiram said, “Interest rate is based upon risk, and the inability to sue for deficiency will raise that risk. Every new mortgage holder will pay for those walking away.”

However, not all of them are against the bill or at least the idea of further regulation, such as Mike D. of Dallas: “I am not sure if this is the right answer, but something needs to be done. The games these banks are playing with people, especially in regards to modifications, is out of hand. I think if modifications are going to be available to avoid foreclosure, there should be clear and firm rules/conditions and remove the banks’ ‘whims’ from the equation. I think the judicial process might help keep an eye out on the banks to ensure they are not getting out of hand ... the system is most definitely broken.”

I will watch this legislation and report back on its progress. I predict a fierce debate if the bill makes it out of committee. I did get late word that Rep. Kendrick is planning a rally on Feb. 15 in support of the bill. Visit Kendrick’s Facebook page for further details.

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