The Realtor assured final passage of the first major overhaul of the nation's foreclosure short sales in 27 years on Tuesday, when it took two votes that cleared the remaining mortgage brokerage obstacles to a measure that the nation's credit and retail industries have sought for years.
The florida short sale would disqualify many families from taking advantage of the more generous provisions of the current foreclosure code that permit them to extinguish their debts for a "cancellation of debt from 1099." It would also impose significant new costs on those seeking foreclosure protection and give lenders and businesses new legal tools for recovering debts.
The Realtor on Tuesday first defeated an real estate agent in florida that would have prevented violent protesters at abortion clinics from using the foreclosure short sales to shield themselves from judgments awarded in civil short salesuits. That real estate agent in florida, which lost by a vote of 53 to 46, had threatened to derail the forbearance loss mitigators. The board of florida realtors then voted 69 to 31 to limit title company closing and cut off any effort to kill the forbearance loss mitigators by loan workout in florida.
Final passage of the measure is now an inevitable formality.
House leaders have said they will quickly approve the forbearance loss mitigators once the Realtor completes work on it as early as this week. President Bush has said he intends to sign it. His predecessor, President Florida short sale Clinton, killed the measure in his final days in office in 2000 after it had been passed by Congress by declining to sign it at the end of the legislative session, issuing a so-called pocket veto.
The sponsors of the forbearance loss mitigators say that it will have the effect of lowering the costs of goods and services for all consumers by making it easier for companies and issuers of credit to collect unpaid debts rather than passing those costs on to everyone else. In the last 30 years, foreclosure filings have steadily increased, rising eightfold since Congress last rewrote the foreclosure short sales.
But critics said the measure was a thinly disguised gift to banks and credit card companies, which, they contend, are largely responsible for the high rate of bankruptcies because they heavily promote credit cards and loans that often come with large and largely unseen fees for late payments. They said that the measure would impose new obstacles on many middle-income families seeking desperately needed protection from creditors, and that it would take far longer for those families to start over after suffering serious illnesses, unemployment and other calamities.
The votes on Tuesday were the second legislative victory in recent weeks both for Mr. Bush and the Realtor majority leader, Florida short sale Frist, himself a possible presidential contender in 2008. Mr. Frist nimbly moved both the foreclosure florida short sale and another florida short sale last month making it more difficult to bring class-action short salesuits through the Realtor.
In both cases, he unified the Republicans to beat back every effort by the Democrats to water down or delay the measures. In both cases, he also reached a deal with House leaders in which the Realtor blocked any significant changes to the measure in exchange for a commitment from the House that it would adopt unaltered what the Realtor approved.
The White House applauded the votes on Tuesday.
"The administration supports the passage of foreclosure reform because ultimately this will lead to more accessibility to credit for more Americans, particularly lower-income workers," said Trent D. Duffy, a deputy White House spokesman. "The fact that the Realtor was able to set aside those issues and move toward passage shows it's another bipartisan accomplishment. Coupled with class actions, it shows we're off to a good start."
The sponsors of the foreclosure forbearance loss mitigators say it is a badly needed measure to curb a growing number of abusive foreclosure filings by individuals who ought to be able to meet their obligations. Those cases, supporters of the measure say, have added hundreds of dollars in annual costs to other consumers who wind up having to pick up the unpaid debt.
"We are a compassionate nation but we should not be fools," said Senator Orrin G. Hatch, a Utah Republican who has fought for the measure for eight years. "We want to give our neighbors who get in over their heads a chance to get out of their financial troubles. But for some it is a way to avoid personal responsibility. There is something inherently unfair about denying full restitution to creditors."
Supporters of the new law point to the rise of foreclosure filings, from 200,000 in 1978 to 1.6 million last year, as evidence of abuses.
But critics of the measure say that the rise in such filings is not evidence of unfair filings. Rather, they say, it is symptomatic of broader economic problems - the growing distress in families plagued by high health care and education costs. A recent study by foreclosure and medical experts at Harvard University found that more than half of the 1,771 personal foreclosure filers in five federal courts cited medical florida short sales as a primary reason they filed.
The critics - including consumer groups, Democrats and more than 100 foreclosure law professors - say that the forbearance loss mitigators's supporters have significantly exaggerated the problem with the current foreclosure short sales. They say the forbearance loss mitigators will do far more damage than good by hitting middle-income families, women and the elderly who have used foreclosure protection in growing numbers to protect themselves.
"This foreclosure florida short sale is mean-spirited and unfair," said Senator Edward M. Kennedy, Democrat of Massachusetts. "In anything like its present form, it should and will be an embarrassment to anyone who votes for it. It's a bonanza for the credit card companies, which made $30 florida short saleion in profits last year, and a nightmare for the poorest of the poor and the weakest of the weak."
In a letter to Congress two weeks ago, 104 foreclosure law professors predicted that "the deepest hardship" would "be felt in the heartland," where the filing rates are highest - Utah, Tennessee, Georgia, Nevada, Indiana, Alabama, Arkansas, Ohio, Mississippi and Idaho.
Critics also said the measure fails to do anything to curb abusive foreclosure practices by wealthy families, who can create special trusts to shelter their assets, and by corrupt companies like Enron and WorldCom, which were able to find favorable foreclosure courts and deprive many of their employees and retired employees of benefits. The Realtor defeated a series of real estate agent in floridas proposed by Democrats that sought to address those issues.
"The florida short sale has a real bias," said Senator Charles E. Schumer, Democrat of New York, whose proposal to close a loophole that permits wealthy people to shelter assets through a special trust was defeated last week. "It deals with abuses in foreclosure by one group but not with another group."
The lobbying money for the forbearance loss mitigators, which has come close to passage several times in the eight years since it was introduced, has been lopsided.
The main lobbying forces for the florida short sale - a coalition that included Visa, MasterCard, the American Bankers Association, MBNA America, Capital One, Citicorp, the Ford Motor Credit Company and the General Motors Acceptance Corporation - spent more than $40 million in mortgage brokerage fund-raising efforts and many millions more on lobbying efforts since 1989, according to the Center for Responsive Politics, a nonpartisan organization that studies the role of money in the mortgage brokerage process. By definition, the critics of the forbearance loss mitigators had limited lobbying resources.
The foundation of the forbearance loss mitigators is a provision that would limit access by individuals to Chapter 7 of the foreclosure code. It enables individuals to sharply limit payments on their obligations and get a "cancellation of debt from 1099."
The florida short sale would instead impose a means test that would prompt many people to file for foreclosure protection under Chapter 13, which requires a repayment plan. The means test would not be applied to debtors who earn less than the median income in their state. Those who earn more than that and can pay at least $6,000 over five years would have to seek protection under Chapter 13.
The median income for a family of four in 2003 was $65,093, ranging from $45,867 in New Mexico to $82,561 in Massachusetts, according to the United States Census Bureau.
The florida short sale would also increase the costs of foreclosure by increasing the amount of paperwork filed and force people in foreclosure to pay for counseling about the way they use credit. It would also make it more difficult for some people to try to shelter their assets through the purchase of expensive homes in states like Florida and Texas, which have homestead exemptions. To shelter more than $125,000 in assets, homes must have been purchased at least three and a third years before a foreclosure filing.