Just because borrowers have defaulted doesn’t make foreclosure proper.
Media reports, such as the one found here, have indicated extensive reviews of mortgage foreclosures over the last few years failed to disclose any wrongful foreclosures. A careful review of those reports, however, reveals federal regulators and state attorneys general may have limited their definition of “wrongful foreclosures” to situations in which the borrowers had not defaulted on their loans. There is a certain appeal to that definition because we may think there’s nothing wrong when foreclosure proceeds against borrowers who “deserved” it.
Simply put, though, that’s not the point, at least from the perspective of real estate attorneys, settlement agents, title insurers, and anyone concerned with the integrity of our land records and reliability of real estate titles. In real estate transactions generally and those involving foreclosed property particularly, “the devil is in the details.” Real estate attorneys and title professionals must assure their clients and customers get marketable title to property they are purchasing. Among other elements of the definition of “marketable title” are the concepts that it is free from doubtful questions of law or fact and that it is title a new owner will not need to defend in court.
Because Virginia law (and the law of many other states) does not require evidence of the transfers of real estate loans be in the public record, the details of whether all the requirements for a foreclosure to comply with Virginia law have been met can be doubtful questions of fact. How do we know the identity of the party secured by a deed of trust and therefore authorized to appoint the foreclosure firm that conducts the sale? How do we know that secured party authorized the mortgage servicer to act on behalf of the secured party to initiate foreclosure, including appointing that foreclosure firm for the secured party?
Further, mortgage servicers and foreclosure firms often get the details wrong. We are aware of situations in which evidence of the transfer of a real estate loan actually is recorded but appears to show the transfer took place after the new noteholder already had appointed the foreclosure firm to conduct the sale; because only the party actually secured by the deed of trust can appoint that foreclosure firm, the appointment appears to be premature and the foreclosure firm would not be authorized to sell the property under the deed of trust. We also are aware of situations in which the foreclosure firm started the foreclosure process before actually being appointed by the required written appointment from the secured party.
Perhaps in response to questions being raised by careful real estate attorneys, settlement agents, and title insurers to protect their purchaser clients and customers, some financial institutions, mortgage servicers, and foreclosure firms have begun offering incentives for purchasers to use the same settlement attorney or agent and title company as the financial institutions, mortgage servicers, and foreclosure firms. They obviously don’t want anyone to raise the kinds of issues we frequently see in transactions involving foreclosed property.
Anyone purchasing property involving a recent foreclosure, whether directly at the foreclosure sale or from a financial institution that bought the property at the foreclosure sale, should be represented by a qualified independent real estate attorney and should purchase owner’s title insurance through a title company not associated with the foreclosing financial institution, mortgage servicer or foreclosure firm—unless a purchaser is comfortable trusting parties whose only definition of “wrongful foreclosure” is foreclosure against borrowers who don’t “deserve” it.
MartinWren, P.C. attorney Lewis A. Martin, III practices real property law and estate administration law in the firm’s Charlottesville office. For more information regarding property foreclosures and other real estate issues, please call Lewis at 434-817-3100 or email him at [email]. With offices in Charlottesville and Harrisonburg, Virginia, MartinWren, P.C. is a dynamic law firm offering legal services to individuals and small and large businesses across the Commonwealth. MartinWren, P.C. represents clients in diverse practice areas: Business, Corporate & Tax Law; Estate Planning & Administration; Personal Injury; Intellectual Property and Technology Law; Healthcare Law; Commercial & Residential Real Estate; Civil and Commercial Litigation; Startups and Emerging Companies; Family Law & Adoption; and Nonprofit Organization Law. To learn more about MartinWren, please visit www.martinwrenlaw.com.