Friday, February 13, 2015

Campbell on Nonjudicial Foreclosure

CampbellJohn Campbell (Denver) has posted Getting Wrongful Foreclosure Right: Two Stage, Progressive Filtering in Nonjudicial Foreclosure States on SSRN.  Here's the abstract:

In some states, foreclosures occur with no judicial involvement. Typically, after this "nonjudicial foreclosure," the new buyer of the home will file an unlawful detainer in court to remove the former homeowner. But, what if, in that action, the homeowner (now defendant) produces evidence the foreclosure was illegal - even void? Can the homeowner avoid eviction? The answer to this question depends on what state a homeowner is in. In 8 states, even if a homeowner proves that the foreclosure was void and the new buyer could not have taken title, the homeowner will still be evicted from the home. This is because in those states, the court is prohibited from considering any evidence relating to who has legal title to the property. As a result, homeowners can be removed from a home before any court determines - despite having the chance to do so - who has a superior claim to possession.

This article highlights this split between states that consider evidence in unlawful detainers (challenge states) and those who do not (no-challenge states). I argue that no-challenge states unnecessarily cause, augment, and concretize the harm of wrongful foreclosures. I assert that these harms run to homeowners, the legitimacy of courts, and society as a whole. Ultimately, I assert that challenge states have found a more prudent path that obtains the expediency of nonjudicial foreclosure while still allowing for just results.

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