Friday January 7, 2022
A Busy Week
Hey
Checking in on a snowy morning here in the Northeast.
It was a busy week, so I apologize for not getting this out sooner.
Today, I thought I would discuss what you should expect when you decide to “challenge” a foreclosure. I also wanted to discuss the different types of “foreclosure jurisdictions”, and different types of “mortgage theory jurisdictions. I will also emphasize the extremely unfair (and unconstitutional) non-judicial foreclosure process, and why I believe that it should be struck down.
Technically the term “foreclosure” refers to the “Lender’s” foreclosure of the borrower’s right of redemption. The right of redemption, depending on whether your state is a “Lien Theory” or “Title Theory” state, is the procedure after you pay off the Note, to either clear the mortgage lien from your title [“Lien Theory”] or return the defeasible fee title interest that you granted to the Lender when you took out the loan [“Title Theory”]. If you default on your mortgage loan payments, the “Lender” (or its legally valid assign), has the right to enforce the security instrument for the Note, which is the mortgage. This is the process of bringing “foreclosure proceedings” that would sever your right to “redeem”, [right of redemption].
There are also generally two different types of “foreclosure jurisdictions”, and also a few hybrids in places such as Connecticut and Vermont.
A “judicial” foreclosure state (New York for example), as the name implies, requires a foreclosing person or entity to file a lawsuit to foreclose on your “right of redemption”. Whereas a “non-judicial” state like Massachusetts, the foreclosing entity forecloses through the terms of the mortgage contract and state statutory requirements, without the necessity of having to file a lawsuit.
Non Judicial Foreclosure
Defending a foreclosure in a non-judicial state is an extremely difficult undertaking. Unlike defending a lawsuit brought against you in a judicial foreclosure state, in Massachusetts (where I predominately practice), in order to stop or enjoin a scheduled foreclosure auction, the borrower would have to 1) draft a Motion for Preliminary Injunction, 2) draft a Memorandum of Law In Support of this Moton, citing relevant legal authority, and providing a detailed factual description of the facts of their particular case, and 3) draft an underlying “verified” complaint. The borrower must then meet the standard for allowing the issuance of a “preliminary injunction” to “enjoin” the foreclosure auction.
You must then “serve” all of the above pleadings upon the foreclosing entity (and anyone else that you have named as a defendant), and have a hearing date scheduled, all of which must be completed prior to the auction sale date. In Massachusetts, G.L. c. 244, sec. 14, requires that the foreclosing entity publish the auction for three consecutive weeks prior to the auction in the “local paper”1. However, G.L. c. 244, sec. 14 allows as little as two (2) weeks’ notice of sale to the borrower.
If you manage to complete all of the above requirements prior to the auction sale, at the hearing you may be given as little as ten (10) minutes to explain to a Judge precisely why you would be granted an “injunction” to halt the scheduled sale.
In making a determination on a preliminary injunction, the trial court judge must look at a number of factors, and then perform a “balancing test”, to determine whether the “equities” would favor the issuance of an injunction.
The trial Court Judge must first assess the borrower’s “likelihood of success” on the underlying complaint. This is usually a very difficult burden to meet. There are a number of reasons why this is such a difficult task.
First, you are the Plaintiff and must “carry the burden of production and persuasion”. This essentially means that it is you that is saddled with the responsibility to “carry the football down the field”. Making this even more difficult is the fact that many of the relevant documents critical to your defense are in the possession of the “Lender or its assign”.
There is also a natural “cognitive dissonance”, where the judiciary is forced into a corner to understand that “money was lent” and not being paid back. So when a borrower advances an argument related to the failure of the current “mortgagee” (who is not the original lender) to establish its right to enforce the borrower’s note and mortgage, there creates a disconnect to “the natural order of things”.
The burden of proof is always on the person making an assertion or proposition. Shifting the burden of proof, a special case of argumentum ad ignorantium, is the fallacy of putting the burden of proof on the person who denies or questions the assertion being made. The source of the fallacy is the assumption that something is true unless proven otherwise.
The person making a negative claim cannot logically prove nonexistence. And here's why: to know that X does not exist would require a perfect knowledge of all things (omniscience). To attain this knowledge would require simultaneous access to all parts of the world and beyond (omnipresence). Therefore, to be certain of the claim that X does not exist one would have to possess abilities that are non-existent. Obviously, mankind's limited nature precludes these special abilities. The claim that X does not exist is therefore unjustifiable. As logician Mortimer Adler has pointed out, the attempt to prove a universal negative is a self-defeating proposition. These claims are "worldwide existential negatives." They are only a small class of all possible negatives. They cannot be established by direct observation because no single human observer can cover the whole earth at one time in order to declare by personal authority that any “X” doesn't exist. In other words, it is very hard to impossible to “prove a negative”.
You also have to understand these cases also place a tremendous amount of pressure on the judiciary. For instance, a Superior Court Judge (in Massachusetts) is faced with a kaleidoscope of types of cases that he or she must simultaneously take under consideration, and maintain.
Foreclosure is an extremely complex and esoteric area of the law, which requires consideration of many different areas of the law [incluing the “Uniform Commercial Code, and Real Property law and historical case law decisions, as well as decisions made on foreclosure cases].
Exacerbating the problem, the Massachusetts Courts have not been faced with many serious challenges to the financial industry’s arguments. Indeed, foreclosure mostly involves individuals that do not have access to significant financial resources that would allow them to secure legal representation. Further, even if a borrower has the financial resources to hire counsel, there are very few Attorneys that have experience litigating these cases, and generally, they take place “pro-se”.
Many lawyers may say that they “handle foreclosure cases”, but often this involves the lawyer working with you to merely get a “loan modification” or “short sale”, things that you have the ability to do yourself. These “strategies” assume that you agree that the foreclosing entity owns the right to “kick you to the curb”, without ever really proving they legally had that right at all.
However, as described above, litigating these cases as a plaintiff is extremely difficult where you have to prove a negative, that is that the foreclosing entity does not have the right to foreclose on you.
In other words, the non-judicial foreclosure process is set up so that a borrower can never succeed as a Plaintiff. The process may have made sense prior to the “securitization” of mortgages. Indeed, if you took a Loan out from Bank Y and defaulted, there was no question that Bank Y was a proper party to foreclose on you as the borrower. Clearly, this is not the case today in over 90% of mortgage loans taken out by borrowers.
Why is the non-judicial foreclosure system allowed to exist? The answer is obvious, the financial lobbyists ensure that state statutes remain favorable to the financial industry. Mortgage Loans are merely a conduit to sell bonds to “investors” in the “secondary mortgage market”
I would argue that the non-judicial foreclosure process is an unconstitutional deprivation of due process. While critics will claim that the non-judicial foreclosure process operates as a “creature of contract”, and that parties are free to bargain for the terms of that contract [namely the power of sale], such argument fails to consider the fact that the current party seeking to enforce the mortgage was not the ‘original lender”.
Challenges have previously been made to the non-judicial foreclosure process unconstitutionality. Here is a 1997 Missouri Law Review article [that took place prior to the mass roll-out of securitization] which takes the position that non-judicial foreclosure constitutionality is “well-settled”. Here is a 1972 University of Chicago Law Review Article (“After Fuentes”) that discusses the potential unconsti=utionality of “power of sale” foreclosures (“Non-Judicial”), see also a 2015 Emory Law Journal Article, “Are Fannie Mae and Freddie Mac State Actors? State Action, Due Process, and Nonjudicial Foreclosure [Eye, William, E.].
Because a borrower is generally financially distressed, and cannot afford counsel to defend his or her real property rights, and must illogically wage a “battle” to “prove a negative, and therefore does not have the opportunity for a “meaningful opportunity to be heard”.
Additionally, while some case decisions have held that a state statute’s mere “allowance” of “nonjudicial foreclosure” is merely “passive state action” not subject to the “state actor” requirement to establish under the due process clause, such finding is extremely short-sighted and fails to fully appreciate the one-sided nature of the process.
Again, the condition precedent associated with historical case decisions on the constitutionality of the non-judicial foreclosure process is predicated upon the belief that the foreclosing entity truly owns the right to enforce the note and mortgage.
Where the borrower plausibly identifies defects in the foreclosing entities claim of ownership, such condition precedent has not been established, and therefore the “power of sale” cannot be an option unless and until it is first established that the foreclosing entity (that was not the original lender) has met its burden as a real party in interest. Indeed, it is well established that a party’s “standing” can be raised at any time.
A foreclosure auction in Massachusetts is a barbaric procedure that takes place in front of the property providing a show for your neighbors to watch and to further humiliate you without ever providing any meaningful opportunity for you to challenge the foreclosing entity’s claim of ownership. Here is an example of an auction from 2017 [Note this was not a client of mine, and this link was publicly available through an internet search]
For those of you that think there could never be any successful challenge to the claim that the foreclosing entity actually has the right to take your house, I would review the case that I argued before the Massachusetts Supreme Judicial Court, U.S. Bank v. Ibanez, 458 Mass. 637 (2011).
Using The Eviction Court
In Massachusetts, if the foreclosure auction takes place, this does not mean that the former borrower is immediately ripped out of the house and tossed onto the front lawn along with their belongings.
Foreclosure merely “severs the right of redemption”. If the foreclosing entity utilized G.L. c. 244, sec. 14 to foreclose, if the borrower remains in occupation of the property, the high bidder at the auction or the foreclosing entity has to file a complaint to evict the occupant.2
We have successfully defended many cases using the eviction court to rescind the foreclosure auction, and settle the lawsuit, and/or restructure the mortgage loan to allow the borrower to resume more affordable payments.
In an eviction proceeding (at least in Massachusetts) the borrower becomes the Defendant (now the foreclosing entity must carry the football down the field). The borrower/occupant may ask for a jury trial and is entitled to request “discovery” from the foreclosing entity.
However, this is also a precarious position for the borrower/occupant to be in. The foreclosing entity may request “use and occupancy” payments (fair market rental value of the house ) during the time of contesting the eviction. Whether requested or not such charges accrue during the time of defending the eviction, and also may be sought by the foreclosing entity upon receiving a judgment for possession.
Until the next installment, please stay safe out there
Glenn
Massachusetts also requires many other additional obligations that the foreclosing entity must follow leading up to the publications of the auction, such as the 90 day right to cure the deficiency, and other Affidavits that must be filed on the borrower’s title. For simplicity, I have decided to merely discuss the foreclosure process at the time of auction sale.
There are two other methods to foreclose in Massachusetts, 1) Foreclosure by Sale (similar to judicial foreclosure and 2) Foreclosure by Action, which resembles Connecticut and Vermont’s hybrid process, [see G.L. c. 244, sec. 3-13].