How Would Bill Affect Home Foreclosures?
On March 6, the Albuquerque Journal published an article discussing New Mexico’s Senate Bill 439 (Home Loan Protection & Certain Foreclosures).
How would bill affect home foreclosures?
If you own a home, or ever hope to, you should be aware of a bill before the 2015 Legislature which may drastically affect your rights. We’re going to look at Senate Bill 439. You can find the full text at nmlegis.gov.
But first, it’s important to understand how home ownership in New Mexico works. Assuming you did not hit the lottery, receive an unexpected inheritance or find a bag of cash while walking your dog, you probably borrowed money to buy your house from a bank or mortgage company. How the lender secures repayment is the important distinction before our lawmakers under SB 439.
Historically, loans in New Mexico have been based on the mortgage system. Under this approach, the borrower signs a contract to repay the loan on specified terms, which is called a promissory note. The borrower’s performance under the promissory note is then secured by a second document, a mortgage, which creates a lien on the real estate in the lender’s favor.
The important distinction is that you are the title owner of the property subject to the lien created by the promissory note and mortgage. If you fail to pay as required under the promissory note, the lender must bring a legal action to assert their lien rights directly against the secured property.
This process if known as a judicial foreclosure.
In contrast, in 1987 New Mexico recognized the deed of trust system as another form of real estate financing. The Deed of Trust Act was created to provide lenders with “inexpensive and expeditious foreclosure proceedings.” This system employs the same contract for payment, or promissory note, but instead of a mortgage, there is a deed of trust which places title ownership of the real property in the name of a third party, the trustee.
Having title ownership in the third party trustee, who is usually chosen by and affiliated with the lender, allows the lender to proceed with foreclosure upon a simple notice of trustee’s sale without any oversight or opportunity to be heard. If the homeowner has defenses to foreclosure claims, the homeowner must institute legal action to stop the trustee’s sale. This is known as non-judicial foreclosure.
Senate Bill 439 seeks to expand the use of the deed of trust system by exempting those transactions from the scope of the Home Loan Protection Act. That 2003 legislation was directed against “abusive mortgage lending [causing] too many homeowners [to become] victims of over-reaching creditors.”
The HLPA restricts what lenders can charge for loans and requires that loans provide a net benefit to the borrower, not just fees to the lender. If enacted, SB 439 would serve to re-empower those “over-reaching creditors” to both ignore consumer protections carefully established in 2003 and to act without any oversight through non-judicial foreclosure proceedings just so long as they utilize a deed of trust.
If you have any doubt that there are plenty of “over-reaching creditors” to go around, you might note that “big banks” have paid out more than $100 billion – yes billion – in fines and settlements to the U.S. Justice Department stemming from nationwide fraudulent lending and foreclosure practices during the recent “real estate bubble.”
Lenders profess it is necessary they be allowed to evade the oversight of judicial foreclosure because it is too slow, often requiring years to accomplish with great expense. I have personally handled hundreds, perhaps thousands, of foreclosure cases since joining the court in 2009, at the very height of the “bubble,” and I can tell you firsthand delays are almost always the result of intransigence and neglect on the lenders’ part, not in the judicial system itself.
It is common for lenders to initiate a lawsuit then let it sit for months, even years, without action. Often the excuse is they couldn’t even locate the paperwork proving they own the loan they are seeking to foreclose upon, or that they did not receive loan modification applications which were in fact submitted multiple times in accord with federal regulations.
Sometimes, there is no excuse at all. They simply fail to act upon their lawsuits. To be sure, there are borrowers who orchestrate and enjoy staying in their home without making payments as long as they can, but the lender can simply proceed to trial.
I have scheduled dozens and dozens of trials on residential foreclosures. Not a single case has actually gone to trial. The judicial system is simply not the problem in New Mexico foreclosure litigation.
The oversight from judicial foreclosure requires lenders prove their claims to an independent judge before they take your home away. Non-judicial foreclosure does not make them prove anything to anyone.
You can “Judge for Yourself” whether our Legislature should make it easier for lenders to foreclose without proof or oversight. If $100 billion is any indication, the lenders have a lot to prove.
Please click here to view the article online.
Please click here to view the full text of SB 439.
Safeguard Properties is the mortgage field services industry leader, preserving vacant and foreclosed properties across the U.S., Puerto Rico, Virgin Islands and Guam. Founded in 1990 by Robert Klein and headquartered in Cleveland, Ohio, Safeguard provides the highest quality service to our clients by leveraging innovative technologies and proactively developing industry best practices and quality control procedures. Consistent with Safeguard’s values and mission, we are an active supporter of hundreds of charitable efforts across the country. Annually, Safeguard gives back to communities in partnership with our employees, vendors and clients. We also are dedicated to working with community leaders and officials to eliminate blight and stabilize neighborhoods. Safeguard is dedicated to preserving today and protecting tomorrow. Website: www.safeguardproperties.com.