by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
The following Daily Development deals with a matter that took a lot of attention away from other work today, and consequently will have to serve as a substitute for my providing a case.
Red Alert - New Proposed Federal Foreclosure Law
On October 24, there was a last minute amendment to H.R. 2491, the House budget bill. The amendment added to that bill a federal Nonjudicial Foreclosure law. It appears in the Congressional Record as Subchapter E - Nonjudicial Foreclosure. I found it in the Congressional Record for October 24 at the citation 141 Cong. Rec. H10726-06, but I am not certain that this is an exact citation to the first page of Subchapter E.
I have had very little opportunity to review this bill, as it comes as something of a surprise. Apparently there were hearings in September.
The bill is a broadly preemptive foreclosure act that preempts all state and federal law (except - arguably - Bankruptcy) and provides for a fast and final private foreclosure. I am told that the provision is supposed to apply only to 1-4 family single family homes, but so far I have been able to find no such limitation in the statute.
There is a provision for mailed notice to a variety of parties, but the language identifying notice address leaves considerable doubt as to whether Mullane standards for "federal action" foreclosures are met. There is no provision for hearing prior to the foreclosure, although arguably this could be substituted by agency action prior to the foreclosure (assuming that an agency hearing is a Due Process hearing.)
The bill eliminates any anti-deficiency protection or statutory redemption protection that might otherwise be available to homeowners under state law. It makes the foreclosure sale price conclusively "fair" for purposes of deficiency judgments and makes the foreclosure purchaser a bona fide purchaser.
There is a provision instructing the foreclosure trustee to identify and pay all junior security interests out of any surplus.
Comment: The editor, particularly as he is now involved with the Uniform Law Project to support uniform real estate foreclosure laws, recognizes the argument in favor of simpler and more uniform foreclosure methods. Further, we all pay for expensive and complex government procedures in collecting debts.
On the other hand, this bill dispenses with consumer protections that are the norm in the majority of American jurisdictions, be they private or judicial foreclosure oriented. It also dispenses with hearing protections and possibly with notice protections that are generally regarded as minimal fairness guarantees of the Due Process Clause. It is being done as a last minute "patch in" to a budget bill that is likely to proceed to the President's desk.
Liberal Democrats - this amendment came from your Justice Department.
I am interested in hearing reaction from DIRT readers to the proposal. I wouldn't be surprised to hear many conclude that existing foreclosure laws are cumbersome and unnecessary and should be supplanted with a more modern commercial approach. But there is a proper means to every end - and the question remains whether this blunderbuss is the right answer.
Let's hear your comments. If you wish to have more information, please contact me at (816) 235 2379.
Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. Contact Shawn Kaminsky at the ABA. (312) 988 5260.
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