In an upcoming note in the Iowa Law Review, Timothy Froehle proposes legislative solutions to the foreclosure crisis.
When a homeowner is subject to a non-judicial foreclosure, he must file a lawsuit to
enjoin the foreclosure and raise any applicable defenses, including those based upon standing or
real party in interest. At best, a homeowner will seek to stop the foreclosure by filing a lawsuit of
his own in a court of general jurisdiction; if there is an issue as to whether the creditor is the true
owner of the mortgage, he will also raise it in the complaint. At worst, the homeowner does not
contest the foreclosure, and in a matter of a few months, can lose the property without a court
ever becoming involved and without judicial oversight as to whether the foreclosing party had
the right to foreclose. Alternatively in this context, a homeowner may bring suit and contest
other issues relating to the foreclosure, such as improper notice, and not raise the issue of
whether the creditor is the true owner of the note or has the capacity to initiate foreclosure. In
this situation, the homeowner may waive these defenses and be barred from raising them later in
the proceedings—even if he becomes aware of the likelihood that the creditor‘s standing was not
valid. Further, a court overseeing these cases will not have the ability to raise these issues on its
own motion because the standing of the plaintiff in these lawsuits is not in question.
The problems in these situations when foreclosure is not overseen by a court are quite
substantial. If the many judicial foreclosure cases in which courts have dismissed actions, or
otherwise denied or conditioned a granting of foreclosure to creditors, are a reflection of the state
of affairs among lenders, servicers, and mortgage trusts, the amount of potential violations of
common procedural requirements that are occurring outside of judicial oversight may be
staggering. When a creditor is able to foreclose on a property without having ownership of the
mortgage, or the transfers between assignees contain improprieties, it amounts to an improper
foreclosure of a homeowner‘s property interest. Besides the effect on the individual
homeowners‘ interests, there are the lingering issues of title that will come back to haunt future
buyers long after the creditors have conveyed the property and moved on.
The need to resolve these issues of proper ownership of the mortgages will undoubtedly
arise at some point.
The longer lenders can remain wholly outside of the judicial spotlight, the longer these complex
issues of standing will continue to persist and continue to create havoc in
real property titles. Legislatures can take affirmative action to bring more of these foreclosures
under judicial oversight or the regulation of state and local governments, and they should. The
consequences of waiting until more homes are taken and more defective titles are conveyed will
only prolong the fallout from the housing bubble.
Additionally, this Note argues that non-judicial foreclosure states should add statutory
fee-shifting provisions to their foreclosure laws to allow homeowners to recoup legal fees for
lenders‘ violations of standing requirements. In non-judicial states, this would provide an
incentive for more homeowners to seek legal assistance and for attorneys to review the propriety
of a lender‘s claim to standing and result in more meritorious cases brought within the judicial
In Part II, this Note outlines the securitization process and the problems it has caused in
foreclosure proceedings. Part III analyzes the judicial procedural requirements of standing,
including real party in interest. Part IV analyzes how judges may raise issues of standing and
ownership of the loan on their own motion, and the effect of this lack of judicial oversight in
states with non-judicial foreclosure. Part V argues for legislative solutions that would mitigate
the harmful effects of lenders foreclosing without proper standing and ownership of the
mortgage loan in states with non-judicial foreclosure.
Timothy Froehle, Note, Standing in the Wake of the Foreclosure Crisis: Why Procedural Requirements Are Necessary to Prevent Further Loss to Homeowners, ___Iowa L. Rev.___ (2011)(emphasis supplied).