In July 2013, Rhode Island enacted a statute that required holders of individual consumer first-lien mortgages on owner-occupied properties to send written notice to mortgagors of the right to mediation prior to the initiation of foreclosure proceedings and within 120 days of the date of default. Failure to comply with the statute results in a $1,000 a month penalty and voids the foreclosure. Under the 2013 version of the statute, mortgages that were more than 120 days delinquent as of September 13, 2013 (in other words with a date of default on or before May 16, 2013) were exempt from compliance.
As of October 6, 2014, the 2013 Statute was amended. Among other things, the 2014 amendment removed the September 13, 2013 exemption language. However, the Rhode Island Division of Banks issued regulations that kept the exemption in place. Since that time, lenders moved forward with foreclosures in reliance upon that exemption.
On May 15, 2015, the Rhode Island Superior Court issued a decision in the case entitled Fontaine v. US Bank National Association, ruling that the removal of the exemption language from the 2014 Statute mandated compliance with the 2014 Statute’s mediation requirements for all mortgages, regardless of the date of default for any foreclosures initiated on or after October 6, 2014. Thus, the Fontaine ruling forced lenders to pay stiff penalties to foreclose on properties that previously fell under the exemption and voided foreclosures that had taken place since October 6, 2014 in reliance upon the exemption.
In July, the Rhode Island legislature passed a bill to reinstate the exemption. The bill went into effect on July 2, 2015. Accordingly, lenders can proceed with Rhode Island foreclosures with a date of default on or before May 16, 2013 without having to comply with the mediation rules, including payment of the resulting penalties.
However, the amended statute is not retroactive. Accordingly, foreclosures that were initiated on or after October 6, 2014 and before July 2, 2015 (“Gap Period”) in reliance upon the exemption may be void. Lenders are well-advised to review their Rhode Island portfolios to determine if any of their foreclosures fall within this Gap Period and need to be re-foreclosed.