Yves Smith has an interesting post up on Naked Capitalism about Florida Governor Rick Scott suggesting that Florida could switch from judicial to nonjudicial foreclosures as a way to solve its foreclosure overload. (At a Congressional hearing last fall, the head of BAC testified that 70% of judicial foreclosures are in Florida, a testament to that state’s high default rate and large population among judicial foreclosure states.)
Putting aside the political questions of whether should engage in such a change and whether the votes are there, I think there’s a really interesting legal question lurking in the suggestion. Can a state change from judicial to nonjudicial foreclosure as applied to existing mortgages? (Let’s assume that it would only apply to future foreclosures, however.)
If you’ve been following the goings on in Hawaii as related to SB 651, the state’s new foreclosure law that requires servicers foreclosing non-judicially to produce chain of title documents, including assignments and endorsements prior to scheduling mandatory dispute resolution in front of a mediator, here’s a piece of news you’ll want to hear.
And, even if you haven’t been following the situation pertaining to foreclosures in Hawaii, but you’ve often wondered what the banks would do if they were forced to prove they actually own a home, or represent a trust that holds the actual note, BEFORE foreclosing… you’ll want to hear this too.
It will be several months until a key consumer-protection provision of Hawaii’s overhauled foreclosure law can be used. But there has been one immediate impact: a freeze on many new foreclosures and auctions of homes owned by occupants.
The new law, which took effect earlier this month, did not prescribe a foreclosure moratorium, but the law prohibits lenders from holding nonjudicial foreclosure auctions until borrowers have an opportunity to participate in a dispute resolution program.
Act 48 specifies that public auctions of real property resulting from non-judicial foreclosures cannot take place on court property. According to the law and effective immediately, non-judicial foreclosure auctions may no longer be held on judiciary grounds and are to be held at state buildings designated by the Department of Accounting and General Services. Judicial foreclosure auctions may continue to be held on court grounds.
[edit] GUEST COMMENT: Anybody that understands the foreclosure fraud situation and read this document would tell you: REVIEW OF THE HAWAII TASK FORCE REPORT 1/28/11
1. It appears to me that the group was weighted toward lenders/bankers;
2. The report does nothing to address the problems that have been caused by the securitization of mortgages;
3. There is nothing addressing the MERS issue and its subversion of the recordation process;
4. I see nothing that addressed investigating the elimination of non-judicial foreclosures. The recommendations appear to continue the two courses of action (judicial and non-judicial);
5. There was no “out of the box” thinking…just band-aids and hole-plugging. Apparently, Hawaii banks didn’t want to be “painted with the same brush” as mainland banksters; however, all but a couple participated in the securitization feeding frenzi and MERS – and basically didn’t give a damn about the borrower.
POSTED: 10:20 am HST January 28, 2011
UPDATED: 1:01 pm HST January 28, 2011
HONOLULU — The state consumer protector said Friday that he was surprised by the consensus between lenders and consumer advocates about several reforms to Hawaii’s foreclosure law that he said will help a lot of people.
Consumer Protector Steven Levins said the recommendations include banning deficiency judgments for people whose homes are lost to nonjudicial foreclosure which is the most often-used process in Hawaii. Nonjudicial foreclosure bypasses the courts in a foreclosure, and is the source of most complaints by consumers, who feel they were not given adequate opportunity to save their homes. Many homeowners who have lost their homes in a nonjudicial foreclosure still must pay the unpaid balance of their mortgage after the foreclosure.
Levins said the proposed reform would not only ban deficiency judgments, but it would allow homeowners to choose to go through judicial foreclosure, which is overseen by a circuit court judge. While that may help protect the homeowners’ rights, Levins said, under judicial foreclosure, the homeowner could still face a deficiency judgment.
The major benefit of judicial oversight is that homeowners would be protected from unethical, illegal or improper procedures by lenders, which he said have become a serious problem with the volume of foreclosures in a Hawaii, many serviced by Mainland lenders.
“We gotta add some humanity to the equation,” said Sen. Brickwood Galuteria.
In speaking with Michael Hirschtick yesterday, he raised a very interesting point that I don’t think a lot of people realize: that enforcement of the Note and foreclosing on the Mortgage are two separate things.
I’ll say that again.
There are two parts to a home loan: the Mortgage and the Note. They are two separate and distinct things. A Mortgage (or Deed of Trust) is basically the instructions on what to do if a borrower defaults on a loan; the Note gives them the right to collect money.
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