- Special Sections
- Public Notices
By CHAD SISK
Editor’s note: This story is being reprinted with permission from the Tennessean.
Bankers are trying to cut how much public notice is required before they can foreclose on homes, drawing fire from an assortment of activists, lawyers and open-government groups.
The Tennessee Bankers Association is urging state lawmakers to pass a bill that would reduce the amount of public notice legally required before foreclosures. The group argues that the current rule of three ads is excessive and too costly.
But critics ranging from AARP to lawyers involved in foreclosures are opposing the bill. They say the measure removes the few protections for homeowners in Tennessee’s relatively simple foreclosures procedures.
“It’s almost like you’re squeezing the golden goose to death by slimming it down too much,” said Steve Baker, a Nashville lawyer who is often hired by banks to serve as a trustee on foreclosures but opposes the bill.
The debate strikes at one of the foundations of Tennessee’s foreclosure laws. Tennessee is one of only five states that do not require a court to review or approve a foreclosure sale, treating the matter as a business deal between property owners and banks.
One of Tennessee law’s few requirements is that banks have to publish a notice of foreclosure three times in a local newspaper. Banks want to cut detailed information about the property from the listings and reduce the number of times they have to run to just once.
Banks and some state lawmakers say that the advertisements are confusing and rarely read and that they simply add to the cost of foreclosures.
“The only people that are guaranteed to get paid are the newspapers,” said state Rep. Jimmy Matlock, the bill’s main sponsor in the House of Representatives.
But opponents of the bill say the advertising cost is small compared with the sums involved in a mortgage and foreclosure. They argue the requirement is the main way in which the broader community learns a foreclosure will take place, opening new opportunities to save homes from foreclosure and bringing more bidders to the sale if one occurs.
“This is just a good way for communities to keep a watch out,” said Shelley Courington, advocacy director for AARP Tennessee.
The bill is making its way through the state legislature after the bursting of the real estate bubble has driven down home prices, creating a rise in foreclosures across the nation and in Tennessee.
Foreclosure activity in Tennessee rose more than 50 percent from 2006 to 2008, and it remains high, according to data from RealtyTracs and Moody’s Analytics.
“I can’t say that (the bill) is precipitated by the rise in foreclosures,” said Tim Amos, the TBA’s senior vice president and general counsel. “But it may have created awareness.”
The bill cleared a House subcommittee last Wednesday, the first step toward making its way to the House floor.
Eight other House members have signed on as co-sponsors. The group includes House Democratic leader Craig Fitz-hugh, a West Tennessee bank executive who serves as the bankers association’s president.
In the Senate, the bill is sponsored by state Sen. Jack Johnson, a former banker and chairman of the Senate Commerce Committee. Lt. Gov. Ron Ramsey has expressed limited support for the bill.
Other lawmakers may be sympathetic to the industry.Banks gave more than $200,000 to Tennessee candidates for the state legislature and governor last year, including $184,750 that went to 134 candidates through the TBA’s political action committee.
The contributions were in line with the TBA’s donations in previous years.
The contributions went to candidates who the organization believes “will make good public officials and leaders” and would not give the TBA any extra influence in the legislature, Amos said.
“The bottom line is this (bill) saves consumers money,” Amos said. “This is the biggest cost that consumers incur other than the cost to catch up on payments.”
Bankers and opponents of the bill disagree on who usually pays for the cost of advertising. Mortgages typically include a clause that requires borrowers to pay for notifications, which can run from several hundred dollars to as much as $3,000, depending on the length of the ad and the circulation of the newspaper in which they appear, supporters of the bill say.
The cost is supposed to be taken out of any money that is left over after the mortgage and other liens on a property are satisfied. Since homes sold in foreclosure rarely fetch enough to cover these debts, the banks usually wind up covering advertising, Baker said.
“Occasionally there are excess proceeds,” he said, “but it’s less than one in 100.”
The bill would not shorten the amount of time needed to complete a foreclosure. Although only one notice would be published, banks would still have to wait 21 days before they could complete the process.
Banks also would have to comply with a federal law that requires them to send a certified letter to the borrower before beginning foreclosure procedures. Supporters of the bill say this requirement and other communications give borrowers plenty of notice that they risk losing their property.
“The days of that being the only type of notice of a foreclosure are over now,” Fitzhugh said.
One of the main complaints about Tennessee’s notification requirement is that it is excessive. The newspaper ads typically include lengthy descriptions of the property based on surveyor records.
Ramsey, the top-ranking Republican in the Senate, says he does not favor reducing the number of notices that have to be printed, but he does believe they could be shortened.
Opponents of the bill counter that current law does not require such details; lawyers who draft legal notices have just developed a practice of including them. They say the bill’s solution — to ban long descriptions and require only instructions on how to find the listing in county property records — will leave readers of foreclosure ads with too little information.
“Proper notice is not going to be given when the process of foreclosure used in this state is one in which it is already pretty easy to foreclose,” said Art Powers, president of the Tennessee Press Association and publisher of the Johnson City Press.
The bill could ultimately threaten the state’s foreclosure law itself, Baker said.
If Tennesseans conclude they are not being told enough about foreclosures, they could demand courts to take a greater role. That would slow the process and lead to costs far higher than the price of advertising, he said.
“This thing is not broken,” he said. “I think it’s a bad bill for both sides.”