Foreclosure Fairness Act

| FROM THE PRINT EDITION |
 
 

Sponsored Legal Report

As of July 22, Washington state’s new foreclosure mediation program, established by the Foreclosure Fairness Act (FFA), provides a mechanism for borrowers facing foreclosure to pursue modified loan agreements with the help of a professional advocate and a neutral mediator. For beneficiaries, trustees and their agents, the mediation program is an opportunity to further explore alternatives to foreclosure, but it also establishes additional requirements that must be fulfilled before a foreclosure can be completed.

Under Washington’s Deeds of Trust Act (RCW 61.24, et seq.), which governs nonjudicial foreclosures, the beneficiary or its authorized agent must send the borrower an initial contact letter at least 30 days before issuing a notice of default. Under the FFA amendments, this letter must now inform the borrower that if he or she responds within 30 days, he or she will have an additional 60 days to meet with the lender before a notice of default is issued. This letter must also advise the borrower of the right to contact an approved housing counselor or an attorney.

Significantly, borrowers cannot institute the mediation process on their own. If the housing counselor or attorney determines that mediation is appropriate and no notice of sale has been recorded, he or she may send a request for mediation to the state Department of Commerce. Within 10 days of the request, the department will notify the beneficiary, borrower, trustee and referring counselor or attorney of the selected mediator and the documents and information they must provide in advance of the mediation. Once the mediator is selected, mediation must occur within 45 days, unless the parties agree upon a later date. Before the mediation, the homeowner must provide a financial statement and future income information, debts and obligations, and the past two years’ tax returns. The beneficiary must provide the loan balance, an itemized list of fees and charges, payment history and other requested documents.

The goal of mediation is to avoid foreclosure by reaching a mutually satisfactory agreement. This may include reinstatement, modification of the loan, restructuring of the debt or some other workout plan. The parties must consider the borrower’s current and future income, debts and financial obligations, as well as the net present value of receiving modified payments compared to the anticipated net recovery following foreclosure. They must also consider any loan modification and net present value calculations required under the Home Affordable Modification Program or other applicable federal mortgage relief programs. Within seven business days of the mediation, the mediator must certify that mediation occurred. The certification must include basic information (e.g., time, date and place of mediation), as well as whether the parties mediated in good faith, the conclusion reached and a description of the net present value test used.

Participants in the mediation program must mediate in good faith, and a violation of this requirement may give the homeowner a defense to the foreclosure action. Violations of this duty include failure to timely participate, provide required information, or to designate a representative with sufficient authority to negotiate on the beneficiary’s behalf. A mediator’s certification that the net present value of a modified loan exceeds the anticipated net recovery from a foreclosure also provides a defense to the foreclosure. However, if the borrower defaults on a modification agreement, the beneficiary’s lack of good faith is no longer a defense. If the parties do not come to a new agreement, the existing loan agreement remains in place. Once the trustee receives a certification that the mediation has been completed, it may record a notice of sale.

It remains to be seen how effective the mediation program will be in promoting modified loan agreements that work for both parties. What is certain is that borrowers, beneficiaries, trustees and the attorneys who represent them must adapt to the program’s impact on the nonjudicial foreclosure process and related litigation.

JOHN S. DEVLIN is a shareholder at Lane Powell, chair of the firm’s Mortgage and Consumer Finance Litigation Industry Team, and a member of the Securities Class Action and Financial Institutions Practice Groups. He can be reached at devlinj@lanepowell.com or 206.223.6280.

ANDREW G. YATES  is an attorney at Lane Powell and a member of the firm’s Mortgage and Consumer Finance Litigation Industry Team and Financial Institutions Practice Group. He can be reached at yatesa@lanepowell.com or 206.223.7034.

Sponsored

Legal Briefs: Women in the C-Suite

Legal Briefs: Women in the C-Suite

It's good business.
| FROM THE PRINT EDITION |
 
 

The underrepresentation of women on boards of directors and in the C-suite is astounding in a world driven by analytics aimed at increasing the bottom line. Of the nearly 22,000 companies examined in a 2014 study conducted by the Peterson Institute for International Economics, approximately 60 percent had no female board members, more than half had no women holding executive-level positions and fewer than 5 percent had a female CEO. Aside from the imbalance posed by these statistics, a growing body of literature posits that the business community has yet to fully embrace the financial impact associated with increased female representation within the highest levels of company management.

One crucial metric — the proportion of women represented in upper-level management, particularly with regard to representation in the C-suite — is positively correlated with improved financial performance. The Peterson study suggests that once a company reaches a minimum threshold of female representation in executive-level management positions — at least 30 percent of all such positions — that company could expect an increase of 1 percent to net margin compared to companies with no female representation. While that number appears small, given that companies in the data set produced an average profit margin of 6.4 percent, a 1 percent increase in net margin results in a 15 percent jump in profitability.

First Round Capital, a national venture capital fund, found that of its 300 series seed investments made between 2005 and 2015, portfolio companies with at least one female founder performed 63 percent better than their all-male counterparts when measuring the value at exit against First Round’s initial investment. The Diana Project, an analysis conducted by Babson College and Ernst & Young, found that companies with female entrepreneurs on the executive team experience higher valuations than those lacking such representation — 64 percent higher at the first round of funding and 49 percent higher at the last round of funding.

Given the above, the unanswered question is why is female representation at the highest levels of company management positively correlated with enhanced financial performance? One theory rests in data suggesting that men and women — whether due to experiential or genetic differences — approach and resolve certain business issues in different ways. Men, for example, are more prone to risk than women. According to the Ratio Institute, companies run by male executives have been shown to take on greater amounts of debt and are more likely to undertake risky acquisitions as compared to their female-led counterparts.

These varying approaches to the resolution of crucial issues facing any board or executive team highlight the value proposition of executive-level management represented by female leadership. The purpose of a board of directors is to collectively oversee and direct the most crucial decisions facing a company.

Highly functioning boards and executive teams are those that take the time and effort to analyze critical issues from every conceivable angle — angles which, according to the above, are analyzed differently by women and men. 

To be clear, a shift in hiring practices will not, in itself, result in any guaranteed financial return on a company by company basis. What has been, and will continue to be, a crucial indicator of success is company leadership’s ability to hire the best and brightest to manage the business’ affairs. Bluntly speaking, it is our belief that the best and brightest are often women, and companies paving the way to equal gender representation are currently reaping the rewards of their forward-looking hiring practices.