Washington DC creates "quasi-judicial" foreclosure process
Washington D.C. mayor Adrian Fenty ratified a provision this week with the aim of bringing a more judicial-type framework to the nonjudicial foreclosure system in the nation's capital. However, enforcement of the mandate is likely to add confusion to the federal district's mortgage industry.
"Foreclosures currently do not go through the courts, and some were as quick as 30 days," explained one legislator who drafted the mandate. "That leaves families little time to get their act together. We needed a quasi-judicial foreclosure process that gives homeowners a right to mediation."
The Council of the District of Columbia approved the Saving DC Homes from Foreclosure provision late last week. It requires lenders to engage in a four-month mediation period with delinquent borrowers to discuss payment options before foreclosure. If a foreclosure notice is filed by a mortgage servicer without documents that show loss-mitigation options were offered prior to the foreclosure, the new act can declare the subsequent sale of that property null and void.
Under district law, a lender must also send two separate notices to a borrower informing them of their right to a mediation period. A lender is required to offer mediation, but borrower may opt out. The meetings are held in person.
Lenders must also send a copy of every default notice to the D.C. Department of Insurance, Securities and Banking, which will keep track of the case and possibly request additional information from a lender.
The legislator said the provision was created before recent foreclosure problems surfaced in the industry. "It was forward-looking legislation," he said.
But it may have unintended consequences. "Title companies have stopped underwriting foreclosures, so there are currently no foreclosures in the district right now," said one source.
Indeed, Fidelity National Title Group sent an email from their D.C. counselors clarifiying its position. "Any foreclosure sale ... will be void if the requirements of the act have not been complied with," reads a copy provided to HousingWire. "No foreclosure sale of residential property subsequent to such enactment will be insurable by any of the companies under the Fidelity National Title Group umbrella without the express approval of your local underwriting counsel."
Jeffrey Fisher of The Fisher Law Group, a law firm that operates to protect foreclosure trustees, said he is not sure what the law will do exactly but has been told to expect more guidance on this from the Department of Insurance, Securities and Banking next week.
For Fisher, his frustration at the act continues to grow and may even impact future sales. "It seems incredible that this emergency law passed without participation from stakeholders," he said.
"It's very shortsighted to think that imposing an emergency moratorium until there are regulations and adding the associated costs and burdens of the law will not impact credit availability in the District," he adds. "It seems that no one understands how mortgage finance works."
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