Monday, December 06, 2010

Judicial oversight of foreclosures

A story in today's Globe reports that Secretary of the Commonwealth William Galvin will attempt to revive previously filed legislation that would alter the way that foreclosures are handled in Massachusetts. Under the current practice, the only judicial involvement in the process occurs at the very beginning, and that's just to ascertain whether any party in interest is entitled to the benefits of the Service Members Civil Relief Act (which provides added protections against foreclosure to those serving on active duty in the US military). Since so few of our citizens are in the military, those cases typically end with a default judgment in favor of the lender. From that point on, the foreclosure is an entirely private affair completely under the control of the lender.

The current system may have worked well in an age when almost all mortgages were granted and serviced by local lending institutions, it falls short in protecting the rights of homeowners under the current evolution of the lending industry - a nationwide, one-size-fits-all model, where individual mortgages are just another commodity to be acquired or disposed of with profit the sole motivator and not some family's house. The shoddy practices of the lending industry both in granting all of the ill-conceived mortgages that gave rise to the housing bubble and the disastrous course those same entities have embarked upon in trying to foreclose on those mortgages, make it abundantly clear that someone needs to be looking out for the interests of the homeowner, and that someone is most appropriately the courts.


Anonymous said...

"...make it abundantly clear that someone needs to be looking out for the interests of the homeowner, and that someone is most appropriately the courts."

I agree that this is a step in a good direction, but homeowners should also bear some responsibility for advocating their own interests. Nobody forced them to take out these loans, after all. If you can't be bothered to read it or you don't understand it, you shouldn't sign it. Again, I do think the courts could do more to look after borrowers, I just don't think that the lack of such oversight in the past absolves borrowers from managing their own financial well being.

Dick said...

First, no homeowner has ever read every single document that was signed at a closing. The system would grind to a halt if that happened due mostly to all the documents of marginal value required at the closing.

But my larger point is about the foreclosure process, not about the prudence of the loans in the first place. Other than compliance with the Service Members Relief Act, the foreclosure is entirely in the hands of the lender. The only recourse left to a homeowner facing foreclosure who feels deprived of due process is to initiate a lawsuit against the lender in a very short period of time.

If the homeowner had the money needed to hire a lawyer to pursue such rapid-reaction litigation, the homeowner wouldn't be in arrears on the mortgage in the first place. Better to put the burden of (judicial) proof on the lender.