April 10, 2012

This post is the result of my personal observations as counsel in more non-judicial foreclosure cases than I can count over the last 4+ years around the United States. With the rampant use of robo-signers, fraudulent assignments, backdated notaries, and “public records” manner of taking someone’s house away, it has become more than evident that the entire non-judicial foreclosure system needs to be scrapped in every state where it is used. The reasons are several.

First, the system is unconstitutional. What other system permits an alleged “creditor” to take away something which is titled in your name simply by filing three documents in the public records? All a foreclosing “creditor” has to do to foreclose, in a non-judicial state, is to file (1) a Notice of Default, (2) a Notice of Substitution of Trustee, and (3) a Notice of Sale, and the house is sold at public auction. To make matters worse, there is no state which requires a foreclosing party (or trustee sale company) to generate and mail or send a new sale notice if the sale in the Notice of Sale does not take place on the date in the Notice; the onus is on the homeowner to “keep in contact with” the trustee sale company as to when the “new” sale date is.

On top of that, a homeowner in a non-judicial foreclosure state has to file a lawsuit to seek a court order to stop the sale, which is a two-phased effort: a Temporary Restraining Order to seek to stop the sale temporarily, followed by a separate Motion for Preliminary Injunction to stop any sale during the pendency of the foreclosure challenge. To make matters worse, most states have a bond requirement to effectuate an injunction, and the amount is usually so large that the homeower cannot afford it. This manner of placing the burden on the homeowner to disprove the foreclosing party’s case and being labeled as “guilty until proven innocent” reeks of unconstitutionality.

Further, the non-judicial system never contemplated a creature like MERS or a hydra like securitization. The process was essentially implemented to prevent a landowner who sold someone “40 acres and a mule” from having to personally serve that person with a lawsuit to get his land back if the payment was not made. We have advanced far from that sceanario.

Due process of law requires notice and an opportunity to be heard when there is a claim made against someone. In the judicial foreclosure states, the foreclosing party is made to prove their case, and has no right to sell someone’s house unless the case progresses to a Final Judgment. The homeowner is personally served with a lawsuit (notice), and is permitted to file papers to challenge the lawsuit and be heard at trial (opportunity to be heard). The opportunity to be heard is even present in the summary judgment context, as there is a hearing and the homeowner can challenge the summary judgment request, and has ample time to do so. During this whole process, there is no “bond” requirement in order to stop any sale: the burden is on the foreclosing party to demonstrate, under the law and evidence, that it is legally entitled to foreclose.

In marked (and unconstitutional) contrast, a homeowner has to purchase the constitutional right to an opportunity to be heard in a non-judicial foreclosure state by (a) filing a lawsuit with all of its attendant fees and attending at least two injunction hearings, and (b) posting a bond. These costs and expenses are required whether the homeowner retains counsel or not. There is no other area of the law which requires someone to buy what is guaranteed by the Constitution, and forcing a homeowner to do so is not only a form of prior restraint, but is also places a monetary condition on being permitted to exercise a constitutional right.

“Mr. President, tear down that wall”. Abolish the unconstitutional non-judicial foreclosure system.

At least one state has recognized the inherent problems with fraudulent assignments, robo-signers, lack of notice etc. which are the infectious diseases in non-judicial foreclosures. Hawai’i’s Act 48 abolished non-judicial foreclosures for a year and presently requires all foreclosures to be instituted judicially, forcing the “bank” to prove that it has the legal right to foreclose. Bravo to the Aloha State. Alaska, Washington, Oregon, Nevada, California, Arizona, Montana, Colorado, Minnesota, Michigan, Georgia, North Carolina, Texas, Tennessee, and the other non-judicial states should follow Hawai’i’s leadership example.

Jeff Barnes, Esq.,