Thursday, December 9, 2010

FINANCE & FORCLOSURE: Bill calls for court OK to foreclose

Galvin says reviews would clarify titles, protect homeowners

“You aren’t going to straighten out the economy of the state until this housing thing gets figured out.” — William F. Galvin, Secretary of state

Secretary of State William F. Galvin plans to submit a bill next month that would force Massachusetts mortgage lenders to get court approval before seizing homes, in an effort to protect homeowners and address concerns about how foreclosures are conducted.

Galvin said he will revive a proposal that state lawmakers rejected two years ago because of new questions about the validity of titles for foreclosed properties — an issue housing specialists say is hampering the state’s real estate market.

“Unless we do something to clean up the titles in these properties we are going to have a big continued problem,’’ Galvin said. “You aren’t going to straighten out the economy of the state until this housing thing gets figured out.’’

Massachusetts is one of 27 states that do not require foreclosures to be reviewed by a judge.

Lenders and some real estate lawyers say mandating judicial approvals would create another level of bureaucracy that would delay the foreclosures and, in turn, slow the housing market’s recovery.

Indeed, foreclosures often take more time in states that require courts to sign off on them. The mortgage giant Fannie Mae, for example, estimates that it can take more than 180 days to complete a foreclosure in states with judicial oversight of foreclosures, compared with 90 days in Massachusetts.

Galvin, however, said that court oversight would help resolve the uncertainties about titles that have put the future of many properties in limbo. “You can create a very fast process and provide some finality,’’ he said.

Geoff Walsh, a staff attorney with the nonprofit National Consumer Law Center, based in Boston, said a longer timetable for foreclosures would give owners and lenders an opportunity to find other solutions.

“Allowing that time for the homeowner and the lender to communicate, particularly when there is some judicial supervision, is much more beneficial,’’ Walsh said. “The lenders lose a tremendous amount of money in completing a foreclosure.’’

Currently, lenders in Massachusetts must go through a series of steps before taking a home, including — in many cases — allowing for a 150-day waiting period before seeking foreclosure.

They must also publish a notice in a newspaper, submit a petition to the state Land Court, and warn an owner 14 days prior to auctioning a property.

Kathleen C. Engel, a Suffolk University Law School professor who specializes in mortgage law, said recent evidence of widespread problems with foreclosure procedures shows the need to have courts determine whether a lender has the legal right to seize a home.

“It looks like there are hundreds, potentially thousands, of situations where the lenders didn’t have standing to bring foreclosure claims,’’ she said.

The proposed legislation comes as concerns about foreclosure practices escalate nationwide.

Some bank employees, who have come to be known as “robosigners,’’ admitted in legal depositions that they had signed thousands of foreclosure documents without reviewing the paperwork.

In Massachusetts, the validity of thousands of titles for foreclosed homes also came into question following a 2009 ruling by a Land Court judge who found that lenders were taking homes without any proof they held the mortgages.

That decision is being reviewed by the state Supreme Judicial Court.

During the housing boom, lenders commonly bundled large batches of mortgages into securities to sell to investors. As a result, the ownership of individual mortgages is often unclear, making it difficult for a homeowner to contest a foreclosure or to get help.

This year, lenders in Massachusetts have filed more than 22,000 petitions to take homes, and more than 11,300 property seizures have taken place, surpassing the number for all of 2009, according to the Warren Group, a Boston company that tracks real estate.

State Senator Susan Tucker, an Andover Democrat and cochair of the Joint Committee on Housing, said she tried to advance a similar proposal two years ago, but was thwarted by lenders as well as lawmakers concerned about the cost.

“We were in the middle of a financial crisis,’’ Tucker said. “Nobody was interested in coming up with the resources.’’

State lawmakers did approve several pieces of legislation offering limited protections to homeowners, including extending the time a lender must wait before initiating foreclosure proceedings.

Representative Angelo Scaccia, a Democrat from Hyde Park, said Galvin’s proposal may have more support because lawmakers understand more about the way lenders have managed foreclosures.

Previously, “the facts weren’t known,’’ said Scaccia, who plans to cosponsor Galvin’s measure. “Banks are terrified of this approach, and they are going to come under greater scrutiny.’’

The Massachusetts Mortgage Bankers Association said it would probably oppose the effort. Such a requirement would add to what is an “already long and onerous process,’’ said the group’s outgoing executive director, Kevin Cuff.

Judicial officials in 2007 said the plan would increase the Land Court’s caseload by 72 percent, requiring additional staff, courtrooms, and storage space. They did not estimate how much the additional resources would cost.

The court system’s view has not changed.

“Any new proposals that involve judicial review would present major operational issues,’’ said Joan Kenney, public information officer for the Supreme Judicial Court.

Thomas O. Moriarty, president of the Real Estate Bar Association for Massachusetts, said homeowners already can sue to dispute a foreclosure, and have a buffer in the 150-day waiting period established by lawmakers.

“From our perspective there are available remedies,’’ he said.

But Nadine Cohen, managing attorney for the consumer rights division of Greater Boston Legal Services, a nonprofit that works with low-income clients, said most homeowners who are in financial trouble can’t afford an attorney.

“It’s a case of fairness and due process that before you lose your house you should be entitled to a hearing, if you want it,’’ Cohen said.

Galvin said state courts should be able to handle the added work with current resources.

“They can find time for this. It is an important enough issue,’’ he said. “It is now clear it is important to straightening out the economy of this state.’’

Jenifer B. McKim Boston Globe December 6, 2010

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