Foreclosure Proceedings Research Articles

Considerations regarding the limitation of forced pursuit of certain goods in foreclosure proceedings

This article constitutes an analysis - not exhaustive - of the limitations established by the legislator for the pursuit of the debtor’s patrimony in the enforcement procedure. The article includes classifications of these limitations and the analysis of the criteria and reasons that determine them and subjects to a critical analysis the sufficiency and justification of the tracking limitations existing in the national legislation. At the same time, similar regulations from the Romanian legislation are analyzed, having seen aspects that could be improved in the national regulations. The conclusions of the article include suggestions for amending the legislation in order to increase the quality of regulation and the efficiency of achieving a fair balance between the rights of the creditor and those of the debtor of the foreclosure procedure.

There and Back Again: A Commentary on Social Welfare Policy in the Wake of 2020

There and Back Again: A Commentary on Social Welfare Policy in the Wake of 2020

I ‘Notice’ You ‘Noticing’ Me: A Critical Analysis of the Section 129 Notice of the National Credit Act, and Recomendations for the Implementation of a ‘Specialised’ Foreclosure Notice

Section 129 of the National Credit Act provides that a creditor may not commence any legal proceedings to enforce a credit agreement before first issuing a section 129(1)(a) notice to the debtor. Thus, in a foreclosure context, should a mortgagee wish to enforce a mortgage agreement, he must first comply with section 129(1) and deliver a section 129 notice to the mortgagor. Should this not be done, any ensuing foreclosure proceedings could potentially be excipiable. Accordingly, section 129 has been described as the gateway to litigation and compliance with this section is paramount for debt enforcement. Unfortunately, section 129 has been the subject of much criticism and uncertainty due to its ambiguous wording and the resulting interpretation. Much of the uncertainty relates to the way in which the notice must be delivered and the contents of the notice. With specific regard to foreclosure proceedings, section 129 fails to alert the debtor about his rights and remedies and fails to notify the debtor of the full consequences of foreclosure. Consequently, the section has been amended several times. Unfortunately, the amendments have not resolved all the loopholes in section 129, and some of these amendments have created more uncertainty and ambiguity. Case law has, however, provided some direction as to the interpretation of section 129. Despite the amendments and case law developments, uncertainty still exists, and clarity is urgently required in relation to the interpretation and application of section 129 during foreclosure proceedings. It is accordingly suggested that certainty can only be achieved by implementing a specialised ‘foreclosure notice’.

Bankruptcy & the Underwater Home: A Case for Real Property Redemption

Chapter 7 of the U.S. Bankruptcy Code exists to satisfy the claims of creditors and preserve an economic “fresh start” for the debtor after bankruptcy. In exchange for surrendering her property to the trustee to have it monetized (i.e., sold), the debtor receives a discharge of her debts and an injunction against future creditor in personam actions to recover them. However, the in personam injunction is insufficient to protect consumer debtors who are in default on mortgages encumbering underwater homes because the creditor’s in rem rights remain; after the conclusion of the case, the creditor can continue foreclosure proceedings, which result in eviction and often homelessness. The economic, educational, and health externalities of foreclosure and homelessness are detrimental to individuals and harmful to society at large. The Bankruptcy Code already possesses the tool to prevent these harms without disadvantaging creditors—the right to redeem under § 722—but currently restricts redemption to personal property. This Note argues for a statutory amendment to § 722 that extends the right of redemption to real property.

Compensation and Socio-Economic Status of Borrowers in Foreclosure: Evidence from Swedish Micro-data

Proper compensation during foreclosure is essential to any effort to protect borrowers as consumers. However, the effectiveness of consumer protection and other safety nets during foreclosure has been debated within academia. This study contributes to this debate by exploring socio-economic group differences related to the compensatory potential of foreclosure proceedings. It employs micro-level data on foreclosure auctions in Sweden from 2000 to 2014. The results indicate that there is a correlation between high socio-economic status and a greater potential for compensation and that this is likely not explained by appraiser bias. This article discusses these empirical findings in terms of the need for strict consumer protection regulation and other safety nets, such as alternative mortgage products or debt relief, to ensure that there is a potential for compensation for all borrowers in foreclosure, regardless of socio-economic status.

Editorial for Applied Econometrics

This Editorial evaluates 14 invaluable and interesting articles in the Special Issue “Applied Econometrics” for the Journal of Risk and Financial Management (JRFM). The topics covered include recovering historical inflation data from postage stamps prices, FHA loans in foreclosure proceedings through distinguishing sources of interdependence in competing risks, information in earnings forecasts, nonlinear time series modeling, a systemic approach to management control through determining factors, economic freedom and FDI versus economic growth, efficient cash use of the Taiwan dollar, financial health prediction in companies from post-Communist countries, influence of misery index on U.S. Presidential political elections, multivariate student versus Gaussian regression models in finance, financial derivatives markets and economic development, income inequality and economic growth in middle-income countries, abnormal returns, mis-measured risk, network effects, and risk spillovers in stock returns.

Dispossessed: How Predatory Bureaucracy Foreclosed on the American Middle Class by Noelle Stout

Reviewed by: Dispossessed: How Predatory Bureaucracy Foreclosed on the American Middle Class by Noelle Stout Nicholas L. Caverly Noelle Stout, Dispossessed: How Predatory Bureaucracy Foreclosed on the American Middle Class. Berkeley: University of California Press, 2019. 280 pp. More than a decade on from the Great Recession, it is evident that the economic crash continues to reverberate in the downward mobility of middle-class Americans. Noelle Stout's Dispossessed: How Predatory Bureaucracy Foreclosed on the American Middle Class shows us why. She does so by examining erosion of middle-class livelihoods following the early 21st century collapse in home values and subsequent wave of mortgage foreclosures. Between 2006 and 2013, more than 13.7 million households entered foreclosure proceedings. Despite federal programs that allocated hundreds of billions to assist these homeowners, more than nine million households lost their homes to foreclosure. Stout follows the bureaucratic routines—fine print, convoluted applications, lost files, misdirected calls, outright lies—through which banks and financial institutions profited by denying more than seventy percent of applications for aid. As Stout writes, "My task is to make these bureaucratic dramas as vivid and memorable as the more visible scenes, the evictions and tent cities that dominated news coverage of the crisis" (7). This task strikes at the technical systems of political economy in order to theorize the moral economy of debt relations. In so doing, it offers a model for public anthropology that advances theoretical debates through deep engagement with issues of pressing concern. Dispossessed is ethnographically grounded in Northern California's Sacramento Valley. Not only is the region home to one of the greatest concentrations of mortgage foreclosures, it is also where Stout has generations [End Page 573] of family ties. This methodological standpoint allows Stout to observe a disjuncture between the contemporary dispossession of middle-class people and the federally-administered programs that allowed her relations to construct a middle-class existence following the Great Depression. By contrast to government-run New Deal projects, the response to the Great Recession was routed through the same lending bureaucracies that precipitated the financial crisis to begin with. As Dispossessed attends to this shift, it tracks how neoliberal economic policies have made the entrapment of middle-class people in unpayable debts a constitutive feature of twenty-first century capitalism. Using everyday moments of dispossession, Stout identifies how "post-middle-class-life projects" came to characterize much of contemporary American existence (14). Dispossessed considers the conditions of predatory bureaucracy through five chapters. In turn, the chapters trace a chronological route though the making of the foreclosure crisis and its aftermath. Chapter 1 centers how the Sacramento Valley has been the recursive site of speculation and dispossession. As the valley became a heartland of middle-class homeownership during the second half of the twentieth century, it built upon settler-colonial territory that codified seizure as the foundation of American economic practice. Chapter 2 focuses on how subprime loan agents leveraged working class Black and Latinx social networks in the neighborhood of Oak Park to route people into mortgages they could not afford. Across the country, similar techniques saw foreclosures hit first and hardest in places like Oak Park, where they compounded the cumulative effects of racist housing markets. Chapter 3 moves through a series of middle-income neighborhoods across the valley. While people in places like Oak Park lost their homes before federal mortgage assistance programs existed, these programs promised a lifeline for homeowners with greater class and racial privilege. And yet, privileged homeowners also found themselves facing evictions after corporate lending bureaucracies denied their applications for mortgage modifications, citing incomplete information and lost paperwork. Chapter 4 turns to the employees of predatory bureaucracies who processed loan modification applications. While these employees were sympathetic to borrowers, their attempts to modify loans were undermined by circuitous applications and workflows demanded by Wall Street lenders. Stout contends these inefficiencies are not faults in bureaucratic rationalization, but purposeful designs that enabled lenders to expand the scope of profit and deny modifications. Chapter 5 returns to [End Page 574] middle-class homeowners after banks denied their modification requests. Contrasts between government bailouts of financial institutions and their own impending dispossession drove middle-class...

Dead Grass: Foreclosure and the Production of Space in Maricopa County, Arizona

A wide variety of economic, social, political and moral explanations have been given for why the foreclosure crisis of the late 2000s occurred. Yet many of the tensions provoked by the uptick in foreclosure proceedings, their resolution during the foreclosure recovery process, and the insight they provide into the function of American space remain unexplored. This article uses Lefebvre’s <em>The Production of Space</em> as a framework to explore the spatial and ecological contradictions of suburban development in Maricopa County (Phoenix), Arizona, USA, and the ways those contradictions were drawn into relief by the foreclosure crisis of the late 2000s. Analysis through this Lefebvrian lens uncovers symbolic meanings assigned to urban ecologies and their ruliness as a means of drawing legal devices such as nuisance laws and housing codes into a more-than-human frenzy. This article follows a growing tradition of scholarship that employs Lefebvrian insights to identify and explicate urban planning dilemmas.

Fictitious employment contracts in loan recovery processes in Latvia

Latvia from 2008 till 2013 experienced serious financial crisis. The results of the crisis were significant financial loss in banking area, plenty of foreclosures, plenty of corporate and private bankruptcy processes. One of issues Latvia faced in the foreclosure proceedings was the reaction of debtors – some of them used all possible means (including illegal) to obstruct foreclosure. One of such means is a conclusion of fictitious employmentcontracts on the mortgaged real estate maintenance and later obtaining a court judgment on a wage recovery. The aim of the paper is to research how fictitious employmentcontracts are used and to propose a solution for the fictitious labour agreements issue. Methods of qualitative research were employed in the paper – comparative method, analytic method, inductive method, and deductive method.

FHA Loans in Foreclosure Proceedings: Distinguishing Sources of Interdependence in Competing Risks

A mortgage borrower has several options once a foreclosure proceedings is initiated, mainly default and prepayment. Using a sample of FHA mortgage loans, we develop a dependent competing risks framework to examine the determinants of time to default and time to prepayment once the foreclosure proceedings is initiated. More importantly, we examine the interdependence between default and prepayment, through both the correlation of the unobserved heterogeneity terms and the preventive behavior of the individual mortgage borrowers. We find that time to default and time to prepayment are affected by several factors, such as the Loan-To-Value ratio (LTV), FICO score and unemployment rate. In addition, we find strong evidence that supports the existence of interdependence between the default and prepayment hazards through both the correlation of the unobserved heterogeneity terms and the preventive behavior of individual mortgage borrowers. We show that neglecting the interdependence through the preventive behavior of the individual mortgage borrowers can lead to biased estimates and misleading inference.

Lien Back: Why Homeowner Association Super-Priority Lien Statutes Should Be Repealed

Who should have priority to foreclose on a home? Naturally, one might say that the bank or mortgage company that provided the loan to build or purchase a home should have priority. Most states follow this common-sense approach to property ownership and foreclosure. Twenty-two states, however, have granted Homeowner Associations (“HOAs”) “super-priority” status in foreclosure proceedings. This means that debt owed to HOAs has priority over any debt owed to the mortgage provider. Some state statutes even grant HOAs the power to foreclose on a home, sell it at auction, and wipe out the mortgage providers secured interest entirely. Recently, the Ninth Circuit in Bourne Valley Court Trust v. Wells Fargo found that Nevada’s version of the HOA super-priority statute was “facially unconstitutional.” Many states, including Nevada, adopted these statutes using the same language and recommendations from the Uniform Law Commission, leaving other states respective statutes subject to future constitutionality attacks. Additionally, these statutes have led to severe economic consequences in both the mortgage and housing industries and are generally bad public policy.This Article is the first to examine the Bourne Valley decision declaring Nevada’s statute “facially unconstitutional.” Additionally, this Article is the first to propose repealing HOA super-priority statutes and replacing the statutes with legislation that attaches the HOA debt to the person, and not the property. Alternatively, this Article provides solutions to both substantively and procedurally enhance current HOA super-priority statutes to ensure that the mortgage provider’s interest is adequately protected.

WYNAGRODZENIE DOZORCY RZECZY RUCHOMYCH W POSTĘPOWANIU EGZEKUCYJNYM

THE CARETAKER’S FEE FOR THE CUSTODY OF MOVABLES IN FORECLOSURESummaryIn compliance with the relevant Polish provisions, movables impounded by a bailiff are to be left in the custody of the person with whom they were found. In Article 855 of the Polish Code of Civil Procedure the legislator recognises the bailiff’s option to put impounded movables in the custody of another person, includinga creditor, who then performs the duties of caretaker of the impoundedmovables. The aim of this article is to present issues related to thecaretaker’s fee in foreclosure proceedings. When a movable item isentrusted to the custody of a third party a regulatory relation in publiclaw arises between the bailiff and the caretaker. The caretaker’s fee ispart of the costs of repossession, and are payable in the foreclosureproceedings. The costs of repossession, including the caretaker’s fee, may not be claimed in separate proceedings.

Agency and Incentives: Vertical Integration in the Mortgage Foreclosure Industry

In many U.S. states, the law firms that represent lenders in foreclosure proceedings must hire auctioneers to carry out the foreclosure auctions. We empirically test whether processing times differ for law firms that integrate the mortgage foreclosure auction process compared with law firms that contract with independent auction companies. We find that independent firms are able initially to schedule auctions more quickly; however, when postponements occur, they are no faster to adapt. Since firms schedule the initial auction before contracting, independent auction companies have an incentive to conform to the law firms’ schedules in order to secure the contracts. We argue that this is evidence of a cost of integration that stems from poorly aligned incentives within the firm.

7 Things You Need to Know About: Contract Formation (Presentation Slides)

These slides teach you the seven things you absolutely need to know about forming contracts. They begin with the basis of all contracts the promise and delve into the ethical underpinnings of promises. They then move to the four elements of a valid contract: agreement (including offer and acceptance), consideration, legality and capacity. They end with a discussion of promissory estoppel -- a discretionary remedy utilized by judges to enforce promises in the interests of justice where a valid contract doesn't exist. These cases come up all the time when lenders promise to modify loans, buyers stop making payments and yet the lenders fail to consider the modification and initiate foreclosure proceedings.

Amicus Curiae Brief to the Supreme Court of the United States Regarding Underwater Second-Lien Mortgages (Bank of America v. Caulkett & Bank of America v. Toledo-Cardona)

This United States Supreme Court amicus curiae brief was filed in the joint cases of Bank of America v. Caulkett and Bank of America v. Toledo-Cardona, which pose the question of whether a wholly underwater second-lien mortgage may be lien-stripped in a Chapter 7 bankruptcy. A previous Supreme Court decision, Dewsnup v. Timm (1992) held that Chapter 7 lien-stripping was not allowed on a partially-underwater first-lien mortgage, but expressly limited its holding to its facts. This scholar's brief in support of respondents (to allow lien-stripping) explains the key legal and economic differences between first-lien and second-lien mortgages that differentiate wholly underwater second-liens from the situation in Dewsnup v. Timm, and how petitioner's position would result in better treatment for liens in bankruptcy than in state law foreclosure proceedings. The brief also summarizes the empirical research on the impact of lien-stripping in bankruptcy on mortgage interest rates and explains why the mortgage market is unlikely to respond negatively to lien-stripping. Lastly, the brief addresses the current state of the second-lien mortgage lending market, and explains how high-loan-to-value second-lien lending has virtually disappeared.

The Paradox of Judicial Foreclosure: Collateral Value Uncertainty and Mortgage Rates

Using a sample of 26,892 rate quotes on home purchase loan applications, the current paper investigates interstate variation in residential mortgage interest rates. More specifically, we find posted rate quotes by lenders are directly related to measures of foreclosure process risk including the length of time required to complete foreclosure proceedings within a jurisdiction and the presence (and length) of statutory redemption periods. Mortgage rates are also found to be contingent upon differential underwriting fees and conditions, housing appreciation and volatility measures, and the competitive nature of the economic marketplace in which each lender operates. In contrast to the previous literature, we find the judicial foreclosure process requirements exert little to no impact on observable mortgage interest rate quotes after controlling for these additional dimensions of risk.

Does MERS Have Standing to Foreclose?: Neighborly Advice from Michigan to Illinois

If one purchased real property during the last two decades with a loan from a trusted local bank, there is a good chance that bank is no longer listed in real property records as the legal holder of the loan. In fact, the chances are greater than one in two that a single Delaware corporation purports to be the legal holder of the mortgage securing that loan. As of October 2010, approximately sixty percent of all mortgage contracts in the United States appear in local records as being owned by Mortgage Electronic Registration System, Inc. (“MERS”). In total, this percentage equates to approximately sixty-five million mortgage loans. While the size of these numbers may be astounding, one can still expect the percentage, as well as the absolute number, of American homes registered under MERS’s corporate name to rise.Considering the pervasiveness of MERS in the national real estate market, this Comment examines the legal implications of MERS’ role in the ownership of financial instruments fundamental to loan origination and subsequent loan repayment or foreclosure, and proposes a revised analysis of a leading Illinois case on the subject in light of the persuasive theory of loan notes and mortgage contracts as separate documents expressed by Michigan appellate courts. In order to provide an adequate perspective on the matter, Part I of this Comment gives a brief history of the mortgage recordation process, a description of how MERS operates, as well as a brief explanation of the traditional mortgage recordation and foreclosure practices in Michigan and Illinois. Part II considers two recent Michigan court cases, Residential Funding Co., LLC v. Saurman and Richard v. Schneiderman & Sherman, P.C., that reject MERS’ right to foreclose by advertisement, holding that MERS is the only the legal holder of the mortgage, and thus it has no right to the mortgage indebtedness. Part III will also examine an Illinois case, Mortgage Electronic Registration System, Inc. v. Barnes, in which an appellate court held that MERS did in fact have standing to bring a judicial foreclosure. Then, Part III will discuss why the Michigan cases were decided correctly, and will examine the reasoning in Barnes, providing an analysis in line with the Michigan cases’ theory of MERS’ loan and mortgage contract ownership which would deny MERS standing to foreclose upon a homeowner because it does not have an interest in the indebtedness. Part IV will recommend that, in an expectant future suit, Illinois courts should disallow MERS, Inc. from bringing judicial foreclosure proceedings because it lacks standing to bring such a suit, taking into account legal standing questions, legal formality, and homeowner protection rationales.

Agency and Incentives: Vertical Integration in the Mortgage Foreclosure Industry

In many U.S. states, the law firms that represent lenders in foreclosure proceedings must hire auctioneers to carry out the foreclosure auctions. The authors empirically test whether processing times differ for law firms that integrate the mortgage foreclosure auction process compared with law firms that contract with independent auction companies. They find that independent firms are able to initially schedule auctions more quickly, but when postponements occur, they are no faster to adapt. Since firms schedule the initial auction before contracting, independent auction companies have an incentive to conform to the law firms' schedules in order to secure the contracts. The authors argue that this is evidence of a cost of integration stemming from poorly aligned incentives within the firm.

The foreclosure discount: Myth or reality?

Foreclosed properties sell at lower prices than do nearby non-distressed properties. Of particular concern, is whether there is a “stigma” foreclosure discount whereby REO properties sell at lower prices simply because they have been involved in foreclosure proceedings. To the extent that such a discount exists, arbitrage opportunities exist and the associated market failure has significant policy implications. We examine the foreclosure discount from a different perspective than prior researchers by comparing holding period returns earned by purchasers of REOs with those earned by purchasers of similar non-distressed properties. Our results show that the majority of REO purchasers do not earn economically significant excess returns. On average, the implied market discount is less than typical transaction costs. We also find evidence that REO properties and buyers vary systematically from their counterparts in the non-distressed market segment and that REO attribute prices differ from those of non-distressed properties. Overall, our evidence suggests that the market for REOs operates efficiently: lenders are not irrationally dumping REO properties and REO investors are not reaping extraordinary profits.

Mandatory Mediation and Mortgage Contracts

There is debate over why lenders are unwilling to modify more mortgages, ranging from structural to macroeconomic factors. This paper introduces the information problem that borrowers and lenders face and examines third party mediation as a mechanism to overcome this problem. Mediation offers both borrowers and lenders the opportunity to gain information about the potential for modifying the terms of the loan. Based on a difference in difference analysis of loans in four metropolitan statistical areas before and after at least one county imposed mediation and one did not, mediation policies appear to have positive effects on the rate of loan modifications. The use of mediation in states with judicial foreclosure proceedings may be an effective policy to increase the use of loan modifications and offers evidence that a lack of information may introduce additional barriers to modifications.