Minnesota Governor Tim Pawlenty vetoed a bill this week that would have granted eligible homeowners a one-year deferral on any home foreclosure in which the borrower could show a lender failed to produce good-faith negotiations to save a home.
Pawlenty vetoed the legislation in question—the Minnesota Subprime Borrower Relief Act of 2008 (S.F. 3396)—saying the bill is legally unsound and leaves homeowners in the state open to higher costs when attempting to refinance or purchase new home loans.
“Unfortunately, S.F. 3396 is not an appropriate solution,” Governor Pawlenty said in a letter to policy makers that outlined his reasons for vetoing the bill. “If Minnesota creates a statutory right for individuals to remain in their homes beyond our already extensive foreclosure laws, mortgage providers will factor this additional business risk into mortgage agreements and Minnesota mortgages will be more expensive.”

Pawlenty added that the bill “raises significant legal and philosophical concerns.”
“The contract clause of the U.S. Constitution forbids states from enacting legislation that impairs existing contracts,” Pawlenty said. “This bill impacts existing mortgage contracts by statutorily changing monthly payment obligations and altering the contracts in other ways.”
Minnesota lawmakers proposed the bill with the intent of giving borrowers and lenders more time to develop effective loss mitigation solutions. Minnesota State Sen. Lawrence Pogemiller – 19k (D-59th District) toted the bill on his Web site, saying the legislation “will help up to 12,000 Minnesota home owners by encouraging the use of foreclosure counseling services and good-faith negotiations between lenders and home owners.”
From the beginning, S.F. 3396 has had its critics. Earlier in the year, the Minnesota Bankers Association posted an alert on their Web site asking Members to call for a veto of the bill.