Fast Track Foreclosure Laws: Are They Headed in the Right Direction?
January 2014 Geoffry Walsh National Consumer Law Center®
I. INTRODUCTION The ongoing foreclosure crisis has involved more homes going through state foreclosure procedures than at any other time in United States history. Since 2008, over four million homes have been foreclosed. Before the crisis is over, millions more are likely to follow. The unprecedented volume of cases has produced delays in the foreclosures process in certain areas, primarily in states that require court approval of foreclosure sales. Delays of two years or more are common in some judicial foreclosure states. Not surprisingly, these delays have produced demands from the mortgage lending industry for ways to speed up foreclosures. Much of the industry’s attention has focused on laws to create short cuts through judicial foreclosure systems. In response to these concerns, new state “fast track” foreclosure laws have begun to appear. At least seven state legislatures have enacted such laws since 2009. In most instances, these laws tie a right to fast track foreclosure to a mortgage holder’s claim that a property is “abandoned.” Proponents of the new laws focus upon the futility of delaying foreclosure while a property remains empty and becomes an increasingly grave threat to its community. There is clearly no benefit to delaying foreclosure in these circumstances, and no one would claim otherwise. This report examines seven recently enacted fast track foreclosure statutes: those in Michigan, Oklahoma, Kentucky, Indiana, New Jersey, Nevada, and Illinois. The report also considers a draft fast track foreclosure law prepared by the National Conference of Commissioners of Uniform State Law (NCCUSL). The report concludes that several of these laws contain provisions that work effectively to achieve the twin goals of prompt completion of foreclosures of properties that are truly unoccupied and abandoned. Other statutes, however, have been drafted broadly and are clearly over-inclusive in their reach. Several laws expressly apply to occupied properties and others are vague in defining when they apply. Nearly all set up new and burdensome procedural requirements for homeowners. The overwhelming majority of homeowners facing foreclosure today lack access to legal assistance. Under certain fast track laws, homeowners face loss of substantial rights under state property laws if they do not meet new procedural deadlines, submit paperwork promptly, appear for hearings, and rebut evidentiary presumptions. Finally, beyond speeding up foreclosure sales in selected cases chosen by mortgage servicers, these laws generally fail to coordinate a response to the problem of deteriorated and abandoned properties in foreclosure. There are ways to deal with the problems of abandoned properties in foreclosures that protect communities, preserve existing property rights of borrowers, and allow lenders to minimize losses. After reviewing fast track foreclosure laws now in effect and proposed by the NCCUSL, this report makes nine recommendations for improvement of fast track foreclosure laws. [...]