Thursday, October 28, 2010

Judicial or Non-Judicial Foreclosure: Do I Keep My House!

All of the news of late has been about the so-called "robo-signers" at mortgage companies dealing in 23 "judicial foreclosure states", and the impact that an unknown number of potentially improper foreclosures will have on our already troubled real estate and financial markets.

But, what exactly is the difference between those 23 "judicial foreclosure states" and the rest of the states?

In a so-called "judicial foreclosure state", before a lender can foreclose on a house, it must get approval from the court – whichever one is responsible for hearing Complaints/Suits to Foreclose in the particular state. In Massachusetts, the court would be either the Land Court, which deals exclusively with real estate issues, or the Superior Court. However, Massachusetts is not one of the 23 states mentioned above.

In a judicial foreclosure state, homeowners have the right to go to court and challenge the foreclosure – to have "their day in court." There are many grounds upon which a foreclosure can be challenged: that the bill has since been paid, that there is a discrepancy between the owner's records of payments and the mortgage company’s, or that notice of the request was never received (except if you are already in court, that’s a hard argument to make). The point is that you get a chance to plead your case to a judge before the foreclosure process can commence.

In a state like the Commonwealth of Massachusetts, if you are in default of the mortgage note terms and owe money to the lender/servicer, a number of steps need to be followed as set out in the Massachusetts General Laws. But there is no mandate that the foreclosing party go to court first. In fact, the law specifically does not require any court action. That was the purpose of what is called a "Statutory Power of Sale" – the lender gets rights from the contracts you sign (mortgage and mortgage note) and the General Laws of Massachusetts.

The problem that is being discussed in the "judicial foreclosure states" is that employees with authority to sign foreclosure documents were doing so stating that they had reviewed all of the required files to begin a foreclosure. But, in actuality, they never did the analysis of those files. They simply signed that they did the review, and the courts were relying on the affidavits of these persons. In those cases, the court has a reason to stop a foreclosure or reverse one that happened (in some instances) if, upon examination, the foreclosure documents are not correct or complete.

For example, if there is a claim that the foreclosing party has ownership of the mortgage note and the mortgage, based on an assignment from one bank to another, but there is no such assignment in the file, then the foreclosing bank/lender may not have the right to do so. There may, in fact, have been an assignment, but if it is not on the record, or at least in the possession of the foreclosing bank/lender, the sale is probably no good.

What is the difference, then, in a non-judicial foreclosure state? NOTHING! The foreclosing bank/lender still must have the same documents showing ownership of the loan, and they must provide the same required notice(s) to a borrower, giving them a chance to pay the loan current and avoid a foreclosure.

As a safeguard in Massachusetts, for example, a lender has to give a minimum of 90 days Notice To Cure a Default, and in some circumstances 150 days. No foreclosure process can take place during that time. After and only after that period can a lender/servicer start to foreclose.

In reality – for purposes of "bad documents," affidavits that are false or meaningless, certifications of ownership and amounts owed that are never reviewed, and most of the other steps of the process – there is no difference in terms of judicial vs. non-judicial foreclosure states.

In essence, we are not dealing with a problem with documents for a court. We are dealing with the equivalent of falsified attestations — in legal terms, perjury or what is called "giving false oath." Or, in simpler terms, lying.

Author's Copyright by Richard I. Isacoff, Esq, October 2010

No comments: