Here, again, are two "slices" of a foreclosure case. I'm interested in knowing the views of DIRT readers in private foreclosure states as to the propriety of having a foreclosure trustee who is closely related to one of the parties (usually the lender). It is OK in Mississippi, as the case below indicates. In 1990, Mississippi statutes were amended to remove completely the requirement of trustee neutrality for deeds of trust executed thereafter. MORTGAGES; FORECLOSURE; PRIVATE FORECLOSURE; TRUSTEE: Private foreclosure is valid notwithstanding fact that trustee is related party to lender, who purchases at the sale. Hood v. Vandevender, 661 So.2d 198 (Miss. 1995).

The trustee was the lender's brother. The court cites to an earlier Mississippi decision, Wansley v. First Nat'l Bank of Vicksburg, 566 So. 2d 1218 (Miss. 1990). The rich language of the Wansley court's analysis is worth considering here:

"The field of secured credit transactions has generated some of our law's great triumphs. Sitting in his office, the lawyer as architect has created a variety of legal structures that have enabled both debtor and creditor to do much that each desires but, without law, may not do. These privately made structures have enriched our society beyond the realm of the economic.Mississippi's crop economy would have no existence without them.

[W]e have learned better than to allow complete freedom of contract. . . .

Experience found the economic power of creditors concentrated in the hands of a few while that of debtors was diffuse. There has always been a problem of protection of debtors from unfairness and overreaching, and our efforts in that regard are found in a series of statute . . . and a century of reported judicial meanderings, often complicated by the facts of individual cases. Our pre-War predecessors held that a trustee's financial interest must be severed from the creditor beneficiary and, for that matter, the debtor's as well

In time we shifted our protective focus toward the trustee's conduct and the sale itself, rather than the status or interest of the trustee."

The Wansley court goes on the state that the real concern of courts reviewing foreclosure ought to be with the amount of a deficiency, and the court indicates its confidence that a "commercially reasonable sale" requirement (which it borrows from the UCC) is an adequate protection.

Comment One: The Wansley court in part justifies the result on the grounds that there are few qualified people to perform these actions in rural Mississippi and that the commercial system would not operate effectively with elaborate "trustee neutrality" requirements. This is less of a problem, of course, in many other areas of the country. Furthermore, in Hood, there is no indication that the trustee - the lender's brother - possessed any particular traits that rendered him a desirable participant in the commercial system.

Comment Two: The editor finds it worthwhile to reflect on the Wansley decision in light of the recent spate of DIRT filings concerning deficiency judgment policy - a debate which spilled over the barricade of the editor's abortive "truce" and continued with some very thoughtful debate.

The Mississippi case indicates that over more than a centruy of experience, after many trial runs, the Mississippi system now has a compromise to the problem of debtor protection in private foreclosure that it deems most appropriate for its heavily agricultural, rural economy. The system provides for judicial review of deficiencies.

We don't know at present what the status is of the proposed Federal Foreclosure law, and whether the Justice Department in fact has given up on federal deficiency claims on all loans, or only on home loans. But the fact is that in sweeping away all local and regional analysis of the balancing of debtor/creditor interests in private foreclosure, the Federal Foreclosure statute sacrifices decades of collected wisdom as to the social compromises that are appropriate in this area.

MORTGAGES; FORECLOSURE; PRIVATE FORECLOSURE; PROCEDURE: Failure to mention "corrected" deed of trust in foreclosure on original deed of trust does not affect foreclosure where there is no evidence that "corrected" deed of trust was intended to supplant the original. Hood v. Vandevender, 661 So.2d 198 (Miss. 1995).

The corrected instrument was filed a few days after the original. It contained only minor changes, including a change in the required insurance from $$17,500 to $18,000. The foreclosure notice referred only to the original deed of trust. The court upholds the foreclosure, noting that "[the] corrected deed of trust, whatever its validity, did not by its terms supplant the original deed of trust."

Note: One of the defaults that triggered the foreclosure was the failure of the mortgagor to pay insurance premiums, but there is nothing to suggest that the change in the required insurance amount related to the default.

Comment: To argue that a document entitled "corrected deed of trust" does not "supplant" the document that it clearly "corrects" simply because the correction document does not explicitly so state seems somewhat disingenuous. Clearly the term "corrected" suggests that the parties have in mind restating the record of their transaction. Many courts are quite punctilious about a trustee's compliance with the letter of the statute in private foreclosures. If the Mississippi statute indeed required reference to the recorded security agreement between the parties, it would seem that the "corrected" instrument was the appropriate reference. Therefore, the argument could be made that the foreclosure was out of technical compliance.

The court, in this rather sketchy opinion, does not tell us the grounds for the borrower's argument that the failure to refer to the corrected deed was fatal to the foreclosure. It appears here that the court adopted a "no harm, no foul," approach to the whole foreclosure process. The borrower's default would have been a default under either version of the deed of trust. Further, there is the special feature in this case that the borrower had pled guilty to manslaughter in the death of her spouse, who had been a joint tenant in the property. Perhaps the court was not in a generous mood in her case.

One might inquire, however, whether in general such a pragmatic approach is appropriate in private power of sale proceedings, in which no judicial officer reviews any of the paperwork prior to foreclosure. The best way to insure that the interests of all parties are adequately protected in every instance is to scrutinize carefully the few foreclosure procedures that are challenged.

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