As a real estate attorney for more than 27 years, including more than 17 years as senior vice president and regional counsel for Southern Title Insurance Corporation, the only title insurer domiciled in the Commonwealth, I have been very concerned by the foreclosure problems receiving so much media attention in the last several months. Wholly apart from any public policy and societal concerns with the sheer number of citizens who face foreclosure in these difficult times, the problems that have been disclosed publicly threaten the integrity of many transactions and undermine the reliability of real estate titles and law. Indeed, I taught two programs on foreclosure issues last year for Virginia CLE and the Virginia State Bar Real Property Section, raising some of the same concerns that have come to light recently.
I am pleased to note at least ten bills dealing with those issues have been filed and referred to the 2011 Virginia General Assembly Courts of Justice committees for consideration. Many of those bills generally propose the same or similar changes in Virginia law, so I will address the most significant proposed changes generally, rather than each bill individually.
1. Requirement for recording assignments (HB 1506, HB 1920, HB 1921, SB 795, SB 838)—although the law in Virginia has been that transfers of the document evidencing the secured debt did not need to be recorded, we have found the unrecorded documentation of those transfers in modern real estate financing, including mortgage-backed securitization, has been woefully inadequate. We no longer can rely on the mortgage lending and servicing industry’s systems and records without requiring that assignments be recorded. Even if no other provisions of the proposed legislation are adopted, this requirement should be added to Virginia law.
2. Civil penalties and causes of action (HB 1506, SB 795, SB 837)—the integrity of our land records system depends on titles based on proper foreclosure proceedings by properly authorized parties; we need these legal remedies to encourage financial institutions and mortgage servicers to pay attention to proper documentation of each foreclosure. The prospect of civil penalties and causes of action, as well as potential liability for attorneys’ fees, should give foreclosing parties pause before proceeding with foreclosures on inadequate documentation.
3. Judicial foreclosure (SB 798)—with requirements for establishing the identity and authority of a secured party by recorded assignments and civil penalties and causes of action providing for attorneys’ fees in cases of improper foreclosure, the integrity of Virginia’s traditional non-judicial foreclosure procedure can be restored without requiring judicial oversight. Especially considering the serious shortage of judges in some areas of the Commonwealth already, adding foreclosures to the caseload of our state courts would not be justified.
4. Advance notice of intention to foreclose (HB 1506, HB 1665, SB 795, SB 836)—each of these bills would require that an owner be given advance notice of the secured party’s intention to foreclose and might help the owner avoid foreclosure. While I generally support these proposals, I question whether they actually will reduce the number of foreclosures unless financial institutions change their internal policies regarding loan modification. I doubt those internal policy changes can be legislated, but these proposals might encourage such changes.
5. Shortening the time within which a secured party must release a deed of trust after satisfaction of the secured obligation (HB 1577)—while it certainly would be nice to have deeds of trust released more quickly, strengthening the sanctions for failure to release deeds of trust would be more effective than shortening the time for secured parties to release them. (It would be helpful to have a reasonable statutory limitations period on enforcement of deeds of trust after a conveyance or refinancing in which the secured obligation apparently was satisfied, but I understand that issue would need to be considered in a future legislative session.)
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 firstname.lastname@example.org. 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.