Skip to main content

Search

Home Foreclosures: 5.5.2.4 Notice of Sale

Nearly all state foreclosure laws, whether they are in effect in judicial or non-judicial foreclosure states, require that a notice of the specific foreclosure sale date be served on the borrower.231 This requirement is in addition to advertising duties that give notice of the sale to the general public.232 The notice must identify the date and location of the sale.

Home Foreclosures: 5.6 Default: Waiver and Estoppel

The terms of the note and mortgage or deed of trust generally will define what constitutes default by the homeowner and gives the lender the right to accelerate, or to claim that the remaining payments are due at once.

Home Foreclosures: 5.7 Other Procedural Defenses

Like foreclosure procedures, procedural defenses to foreclosures will vary from state to state, and can only be determined by reference to state statutes and case law. In general, in states that require a legal proceeding to foreclose, service of process and other procedural requirements must be met as in any other case.313 Foreclosure pleadings may be subject to rules set by case law or rule.314 Similarly, rules may require that relevant documents be attached to the complaint.

Home Foreclosures: 5.8.1 Overview

Due process requires that deprivation of a significant property interest be preceded by both adequate notice and a meaningful opportunity for a hearing.329 Foreclosure by power of sale would seem to violate this standard in two ways: personal notice of a foreclosure sale is not required in all states,330 and most states which permits power of sale foreclosure do not require a hearing before a judge prior to foreclosure.

Home Foreclosures: 5.8.2 Participation by State Official

In some states, statutory foreclosure procedures require the participation of a state official for the proper conduct of the foreclosure.335 In these states, a strong argument may be made that the involvement of the state official constitutes state action for due process purposes. A number of courts have reached this conclusion.336

Home Foreclosures: 5.10.1 Overview

Due on sale clauses are common contract provisions which give a lender the option to immediately call due, or accelerate, a real estate secured loan when the borrower sells or transfers all or part of the security to a third party.368 Almost all consumer mortgage loans contain such a provision in the note or security instrument.

Home Foreclosures: 5.10.2 Federal Exemptions

Under the Garn-St Germain Act, and regulations issued by the former Office of Thrift Supervision (OTS) pursuant to the statute,377 valid due on sale contract provisions are enforceable by lenders, subject to nine specific exemptions.378 The Act provides that a lender may not enforce a due on sale clause with respect to residential real property upon:

Home Foreclosures: 5.10.3 Intra-Family Transfers

As is evident from the earlier list of exempt transfers, federal law aims to protect intra-family transfers from triggering acceleration. These include transfers to the borrower’s relative on the borrower’s death, transfers to the borrower’s children and spouse,381 and transfers resulting from a marriage dissolution or property settlement.

Home Foreclosures: 5.10.4 Exemption for “Window Period” Loans

The Garn-St Germain Act also created complex exceptions for states which restricted the enforcement of due on sale clauses prior to the effective date of the Act.384 In order to protect the reasonable expectations of borrowers in these “window period” states, the Act provided that state restrictions would continue for three years after the effective date of the Act, or until October 15, 1985.385 The Act also authorized window period states to continue these restrictions beyond the three year per

Home Foreclosures: 5.10.5 Foreclosure Based on a Payment Default Not Barred

Lenders quite commonly sit back after a transfer and do not attempt to foreclose, even when the due on sale clause might authorize it. However, when a loan falls into payment default, the lender accelerates the loan and initiates the foreclosure process. If the foreclosure is based on the monetary default, and not the intra-family transfer, Garn-St Germain arguably does not prevent the sale.

Home Foreclosures: 5.12.1 Overview

A trustee under a deed of trust, or a mortgagee under a mortgage, has a duty to exercise good faith and diligence in conducting a foreclosure sale of property.420 The lender must protect the rights of the mortgagor under the terms of the power of sale.421 The mortgagee or trustee must remain at arm’s length with the buyer,422 must conduct the sale fairly and limit expenses within reasonable bounds,423

Home Foreclosures: 5.12.2 Enjoining a Foreclosure Sale When There Is Sufficient Equity in the Property to Satisfy the Mortgage Debt

Prior to a sale, a homeowner with substantial equity may be able to enjoin a foreclosure to allow a sale on the open market. A foreclosure sale is virtually guaranteed to bring no more than the balance due on the note.429 A sale on the open market, however, should allow the homeowner to retain some of the equity in the property. Such a sale presents no risk to the lender; it will be paid in full from the sale proceeds.

Home Foreclosures: 5.13.1 State and Local Responses to the 2007 Foreclosure Crisis

The subprime foreclosure crisis that grew with unprecedented severity beginning in 2007 created momentum for state and local governments to look anew at foreclosure relief options. Several states enacted laws that added time and notice requirements to existing foreclosure procedures.438 Other states enacted statutes that increased protections for homeowners at risk of foreclosure of high-cost home mortgages.439

Home Foreclosures: 5.13.2.1 Generally

Since 2008, fourteen states and the District of Columbia have enacted statutes that require lenders and servicers to participate in some form of negotiations with a homeowner prior to foreclosure. Certain statutes require lenders to participate at the homeowner’s option. Others mandate that both parties participate, regardless of a formal request from the homeowner. In most instances, a third party supervises the loss mitigation discussions.

Home Foreclosures: 5.13.2.2.1 Introduction

In several jurisdictions with judicial foreclosures the courts systems have created their own mediation or conference programs for foreclosure cases. These programs did not require specific legislation. Instead, the courts set up the programs under their general case management authority.

Home Foreclosures: 5.13.2.2.2 Foreclosure conference programs implemented by bankruptcy courts

Several bankruptcy courts have also issued general orders creating mediation programs to address foreclosure issues.462 These general orders provide the authority for a bankruptcy court to direct parties to confer and consider loss mitigation in connection with a mortgage foreclosure. A program along these lines has been in effect in the bankruptcy courts for the Southern District of New York since 1993.463

Home Foreclosures: 5.13.2.4.1 Introduction

In most jurisdictions a statute does not set out a good faith negotiation requirement applicable to lenders seeking to foreclose. Nevertheless, courts still have ample authority to require parties to a foreclosure to negotiate in good faith. This is true regardless of whether the proceeding came before the court in the context of a judicial or non-judicial foreclosure. Once the matter is before the court, the authority derives from the courts’ general powers to control the conduct of litigation.

Home Foreclosures: 5.13.2.4.2 The meaning of “good faith”

Statutes and rules for certain foreclosure conference programs define the elements of “good faith” participation. These elements may include appearance by a representative with appropriate authority to settle or the timely production of specific documents.532 Defining specific tasks or conduct as constituting good or bad faith is obviously the most effective way to set an enforceable standard. However, clearly defined standards are not always available. This does not mean that there are no standards to enforce.

Home Foreclosures: 5.14.2 National COVID-19 Foreclosure Restrictions

Federal Legislation. Effective in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act included a number of measures to protect consumers facing hardships related to the COVID-19 pandemic.547 The CARES Act imposed a sixty-day moratorium on certain foreclosure activity.

Home Foreclosures: 5.14.3 State COVID-19 Foreclosure Restrictions Based on State Executive Orders and Court Administrative Orders

Beginning in March 2020, many state officials imposed restrictions on commercial activities in their jurisdictions due to the pandemic. As part of their responses officials ordered moratoria on foreclosures and evictions within certain states. These orders provided important protections to borrowers, particularly those who did not have federally backed loans subject to nationwide foreclosure prohibitions.

Home Foreclosures: 5.14.4 State Statutory Responses to the COVID-19 Pandemic

In response to the COVID-19 pandemic, several states went beyond moratoria and stays of foreclosure activity to enact measures that imposed more substantive obligations on servicers and lenders.584 A New York statute effective in March 2020 set standards for mortgage lenders and financial institutions that are subject to regulation by the state’s Department of Financial Services.585 The law imposed on servicers of non-federally backed loans a requirement to approve borrowers for forbearance alon

Home Foreclosures: 5.14.5 Strategies to Challenge a Foreclosure As a Violation of Pandemic-Related Protections

Violation of federal or state COVID-19 moratoria. As described above, the effective periods for COVID-19-related foreclosure moratoria varied considerably, as did the scope of activities prohibited. The moratorium under the federal CARES Act lasted sixty days and expired on May 17, 2020. Other state-based moratoria expired during the course of 2020 and 2021, with a few extending into early 2022. At a minimum, most of these moratoria barred the filing of new judicial foreclosure complaints and the conduct of non-judicial foreclosure sales.