One Less Tool in the Foreclosure Defense Tool Box
For years, creative defaulting homeowners and their attorneys have thrown up a phalanx of new and old defenses to slow down the foreclosure process. The best defense has always been to live in a “judicial foreclosure” state where the court system must be invoked by the lender in order to take back a property for an alleged default. It is in these states that “robo-signing” and other lender abuses are usually discovered.
But in “non-judicial” states, slowing down the foreclosure process has often meant more creativity, more money for professional services, and more uncertainty. The latest attempt to level the playing field was the creation of the CFPB (Consumer Financial Protection Bureau), but INDIVIDUAL consumers have largely found that brain child of the Dodd-Frank Act to be a bust. The CFPB bureaucracy is really geared toward holding lenders accountable at higher levels .. . . million dollar fines and such.
There was also relief that some consumers could obtain with very technical analyses by sophisticated loan review programs that could detect violations of “Truth in Lending” Statutes. Access to those services were often offered as an add on for loan modification companies. But it hardly makes the headlines any longer when another Loan Modification Company owner is convicted for fraud or closes up and disappears over night. And the slowing of foreclosure by consumers directly applying for modifications has become more and more common. The ultimate success rates of modifications remain disappointing and it is rare to find a homeowner in a modification program that found long term relief. Quite often they discover that the modification was temporary or a “trial modification,” or that the amount of monthly relief wasn’t significant enough to save the home from foreclosure. Lenders in states with the least regulated non-judicial foreclosure procedures often seem to drive the struggling homeowners to short sales or foreclosures. There is no plan C.
One other speed bump in the foreclosure defense repertoire was to make a demand under the FDCPA (Fair Debt Collection Practices Act) provisions requiring a detailed itemization of the debt, i.e., an “accounting.” NOW IN A NEW SUPREME COURT CASE, THE FDCPA PROTECTIONS FOR HOMEOWNERS HAS BEEN WIPED OUT IN NON-JUDICIAL STATES! Basically, the Court in Obduskey v. McCarthy & Holthus said that Foreclosure Trustees are not Debt Collectors. The immediate impact of this pro-lender ruling in Virginia is uncertain. Creative litigators will find new theories on which to build a case for an injunction against a foreclosing Trustee. Bankruptcy should still be an option for most homeowners to save their homes or buy time to transition out of the home. But let us hope that the ruling does not embolden lenders to take the unenlightened approach of rushing to foreclosing even to the exclusion of short sales. It will take more than a Supreme Court ruling to change the economic certainty that foreclosure ultimately costs lenders more than a short sale.
The final unfortunate consequence for consumer borrowers may be that there is one less defense against post-foreclosure lender lawsuits for deficiency judgments. In any event, the need for good legal protection (not just a “lay negotiator”) in a short sale is greater than ever.