NASHVILLE-Bankers are trying to reduce 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 cut the number of public notice ads legally required before foreclosures. They argue 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 foreclosure 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 often is 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.
State law requires banks to publish notice of foreclosure three times in a local newspaper. Banks want to run notices only once and ban long property descriptions and instead tell readers how to find the listing in county property records.
Banks and some state lawmakers say the advertisements are confusing, rarely read and 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 House sponsor.
But opponents say the advertising cost is small compared to the sums involved in a mortgage and foreclosure. They argue the requirement opens new opportunities to save homes from foreclosure and brings 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.
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 Wednesday.
Eight other House members have signed on as co-sponsors, including House Democratic Leader Craig Fitzhugh, a West Tennessee bank executive who serves as the TBA'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.
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.
Ads can cost from several hundred dollars to as much as $3,000, and many mortgages have clauses requiring home-owners to pay for them.
The cost is supposed to be taken out of money left after the mortgage and other debts are satisfied. Since homes sold in foreclosure rarely fetch enough to cover these debts, the banks usually wind up covering advertising, said Baker.
"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 below the current 21 days, and federal law requires banks to send certified letters to the borrower before beginning foreclosure procedures.
Bill supporters say borrowers will have 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.
But a bill requirement to ban long property descriptions and instead tell readers how to find the listing in county property records provides too little information, bill opponents say.
"Proper notice is not going to be given when the process of foreclosure used in this state in 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 if consumers demand courts take a greater role, said Baker.
"This thing is not broken," he said. "I think it's a bad bill for both sides."