Owning a home is part of the American dream but according to the Federal Reserve Bank, homeownership in Rhode Island has dropped to just 56%. The housing and foreclosure crisis hit Providence, Newport and other areas hard. But there are signs that things may be turning around for the Ocean State. Many Rhode Islanders seek out hard money loans to help with purchasing or renovating an investment property or to find an alternative to borrowing from a standard lending institution. Hard money loans often fund much faster than a typical loan offered by a bank or mortgage lender and they can also require less paperwork. If a property owner is willing to use their home or other real estate as collateral, these loans are a popular way to go. Below you will find information about laws, borrower protections, lending regulations and other key issues specifically related to borrowing money for property in the state of Rhode Island.
Rhode Island Foreclosure Laws
The most common foreclosure process in Rhode Island is non-judicial under the Power of Sale rule in most mortgages in the state. Some states require that foreclosures be handled by the courts, called a judicial foreclosure. But in Rhode Island, lenders have more than one option. They have 5:
- Judicial Foreclosure - the lender files a lawsuit to obtain a court order to foreclose. This method is used when no Power of Sale is provided in the mortgage or deed of trust.
- Eviction - the lender files a lawsuit to evict the homeowner.
- Lender Seizes Possession - the lender may take possession of the house, peaceably, in the presence of two witnesses who must provide a notarized Certificate of Possession. A notary must be present.
- Borrower gives up possession - some choose this route in order to keep the stress of foreclosure. A notary must be present for this process to be valid.
- Non-judicial Foreclosure - the most common process in Rhode Island, this is a standard procedure that is managed fully in the court system.
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a Power of Sale clause and specifies the time, place and terms of sale, then the required procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:
- The lender must mail a written notice of the time and place of sale, by certified mail, return receipt requested, to the borrower at his or her last known address, at least twenty (20) days prior to the first publication, including the day of mailing in the computation.
- The lender must give notice of the sale by publication in some public newspaper at least once a week for three (3) successive weeks before the sale, with the first publication of the notice being at least twenty-one (21) days before the day of sale, including the day of the first publication in the computation.
- Said notice must contain the names of the borrower and lender, the mortgage date, the amount due, a description of the premises and the time and place of sale. Any person may bid at the sale, including the lender.
Property Redemption after Foreclosure Sale
In some states, you can redeem (repurchase) your home within a certain period of time after the foreclosure. In Rhode Island, foreclosed homeowners cannot redeem the home following a non-judicial foreclosure. If the foreclosure is by another method, such as by peaceable and open entry (which is rare), then it is possible for the homeowner to redeem the property if they act within three years of the sale. This will require full payment of back payments and fees assigned by the lender. (R.I. Gen Laws § 34-23-3.)
Deficiency judgments are allowed in Rhode Island. When a lender forecloses and sells the property, they sometimes do not make enough money to cover what is owed in back payments and fees by the homeowner. In Rhode Island, it is possible for the lender to get what is called a deficiency judgment, forcing the homeowner to pay the monies still owed. In some states, a deficiency judgment cannot be obtained in a non-judicial foreclosure process. But in Rhode Island, a deficiency judgment is allowed following any type of foreclosure process, as long as the lender files a separate lawsuit.
Deed in Lieu of Foreclosure
A Deed in Lieu of Foreclosure is a special agreement available to Rhode Island homeowners who can no longer make their monthly mortgage payments. In these agreements, the property owner is able to turn over possession of their home to the lender, without owing them any more money. It can save both parties time and money, while avoiding the often stressful foreclosure process. Every one of these agreements in unique, and many times, homeowners are even able to get a small “cash for keys” settlement to offset their moving costs in return for helping the lender avoid the legal foreclosure proceedings.
Grace Period and Mediation
Lenders in Rhode Island have to provide a Mediation Notice to the borrower before starting the foreclosure process. Notice of sale must be mailed by certified mail to borrower at least 30 days before first publication and published in a newspaper for three consecutive weeks before sale.
Rhode Island has a statewide Foreclosure Mediation Program to help protect homeowners from losing their property. It started in September of 2013 and is slated to end in 2018 unless the state legislature decides to extend it. In this special program, homeowners that are not more than 120 days late on their payments can participate in a mediation conference. The property in question must be residential, owner-occupied, the homeowner's principal resident and if it is a multi-unit property (like apartments) then it cannot have more than four units total.
Rhode Island lenders must notify the homeowner before they go past 120 days late about the option to engage in mediation. Borrowers must respond in order to take advantage of this option. If after two attempts, the homeowner fails to respond then they will forfeit their right to mediation.
There is no cost to participate in the mediation program. 60 days after the notice is mailed, the mediation conference will take place. It can be in person or by telephone. A third party will facilitate a good-faith discussion to help the lender and homeowner come to an agreement and to allow the borrower to stay in the property. Some payment or arrangement is usually made as a result of these discussions.
If there is no agreement or if the borrower fails to keep up their part of the agreed payment plan, then the lender can begin the foreclosure process.
There are some cities in Rhode Island that have their own special mediation programs in place, including Providence, Cranston, Warwick and Warren. The statewide rules will supersede any local ordinance, meaning that they will be considered more important than the local rules.
Protections for Military Personnel
Protections under the federal Servicemembers Civil Relief Act are extended to all Rhode Island National Guard members on state active duty for a continuous period more than 90 days.
High Risk Mortgage Protections
In situations where a homeowner has what is considered a high risk mortgage, one with a high interest rate or subprime, the borrower can ask Rhode Island courts to stop the foreclosure if they believe the lender has violated the Rhode Island Home Loan Protection Act, which forbids some things like balloon payments and negative amortization related to high-cost home loans. R.I. Gen. Laws § § 35-25.2-1 to 35-25.2-11
Additional State Laws
Home loans can be a mortgage or a deed of trust in Rhode Island. It depends on the type of document or agreement the lender provides and that the borrower agrees to. In some states, the type of document dictates whether a foreclosure will be judicial (managed in the courts) or non-judicial (managed outside the courts). In Rhode Island, lenders can foreclose on both types, deeds of trusts and mortgages, using both judicial and non-judicial. Mortgage-based agreements are usually judicial, and those with a Deed of Trust will usually pursue a non-judicial foreclosure, which occurs outside the court system and is a much faster process.
The maximum legal interest rate on a loan in Rhode Island is 21%. Regardless of statutory limits on interest rates, consumers regularly agree to waive those limits and pay higher rates by clicking "I agree" online or signing a printed contract. Still, most states have so-called "usury" laws on the books, intended to prevent exorbitant rates.
Under Rhode Island law, creditors may charge up to 12 percent interest on debt without an agreement, but up to 21 percent if there is an agreement.
Rhode Island is a homestead state. Rhode Island allows bankrupt homeowners to claim up to $500,000 worth of their property (based on equity) as a "homestead," which means it may not be seized by creditors. The state also has an additional "wildcard" exemption that covers up to $6,500 worth of other assets, which may also be applied to the home exemption. Yet another state exemption allows bankrupt individuals to protect one burial plot from creditors.
Lender Licensing Requirements
Mortgage Lender/Servicer License Requirements
This license is required for any company (including a sole proprietorship) who, for valuable consideration, originates, sells, or services mortgages, or holds himself, herself, or itself out as a person who, for valuable consideration, originates, sells, or services mortgages.
Mortgage Brokerage License Requirements
This license is required for any company (including a sole proprietorship) engaged in placing loans with investors for a fee, but does not service such loans.
Mortgage Loan Originator License Requirements
This license is for any individual who, for compensation or gain, or in the expectation of compensation or gain takes a mortgage loan application or offers or negotiates terms of a mortgage loan.