Non-Judicial Foreclosure Doesn’t Keep Up With Modern Realities

Check out an excerpt from a recently published Issue Brief from the American Constitution Society for Law and Policy,

An Evolving Foreclosure Landscape:

The Ibanez Case and Beyond

By Peter Pitegoff and Laura Underkuffler

October 2011

Attempts by property owners to negotiate settlements and avoid foreclosure have been stymied repeatedly by the claims of remote third parties and loan servicers who claim that they have no authority to negotiate. To force production of proof of the right to foreclose, and to require good faith participation by lenders in negotiation, judicial oversight is critical. In addition, the obligation to invoke judicial oversight of the foreclosure process should rest with the foreclosing party. The property owner, with generally little information and less expertise, should not be in the position of having to hire a lawyer to stop the foreclosure process and invoke the court’s protection. If a remote assignee or securitization trustee desires to foreclose, it should be required to file a court action to do so.

The logic behind this principle is obvious in those jurisdictions that require judicial supervision and approval of all foreclosure actions. However, it is not traditionally a part of the law in those jurisdictions that do not require a claimed mortgage holder to submit to the judicial process. In the approximately 29 “non-judicial foreclosure” states, a mortgage holder is empowered to proceed to foreclosure and sale if the mortgage grants the lender that power. Since “non-judicial sale” is a mortgage term that homeowners are very unlikely to appreciate, or feel that they can negotiate, it is safe to assume that most mortgage loans in those states grant lenders that power. Indeed, in the cases of the Ibanez and LaRace loans, the properties were foreclosed and sold prior to any judicial involvement. Judicial scrutiny of the foreclosures in those cases occurred only because –months after the sale – the purported mortgage holders chose to initiate quiet title actions. Had they not done so, it is highly unlikely that proof of the right to foreclose, required by the Ibanez court, would ever have been required.54

“Non-judicial foreclosure” statutes are based on the assumption that mortgage foreclosures are relatively simple affairs between two contracting parties, with relatively simple facts about payment. This might have described most residential mortgage transactions twenty years ago. However, in the world of real estate financing in the twenty-first century, this model reflects none of the realities of most transactions. To give claimed mortgage holders the right to foreclose and sell the properties – unless homeowners can guess that the foreclosing party is unauthorized, and know that they have the right to negotiation, and can afford to hire an attorney to file in court – is unrealistic in today’s world and represents poor public policy.

(emphasis mine).  I wish AZ judges would get the memo.


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