Fair Foreclosure Act

Posted by kevin on August 21, 2011 under Foreclosure Blog | Comments are off for this article

Lenders  in foreclosure actions had a bad couple of days (August 8 & 9) in NJ.  On the 8th, an appellate panel came down with a published opinion in BONY, as Trustee v. Laks.  This is a Fair Foreclosure Act case.  We use the FFA as a procedural defense to dismiss cases without prejudice.  It is important because it is a published opinion right out of the blocks and it involves a pro se plaintiff (someone who is not represented by a lawyer)

The Fair Foreclosure Act was promulgated to give homeowners “every opportunity to pay their home mortgages, and thus keep their homes”.  Within that Act is a section which requires the lender to send to the borrower a Notice of Intent to Foreclose (NOI).  This is a prerequisite to filing a foreclosure complaint.  The  statute states 11 items of information that must be contained in the NOI.  One of those is the name and the address of the lender.

The current wave of foreclosures since 2007 have dealt,  to a large extent, with securitized trusts.  Wall St firms bundled up thousands of mortgages and sold them to investors.  A trustee is appointed to protect the rights of the investors, but the servicer, who collects the monthly payments from the borrowers, really runs the show.

What has happened with many securitized trusts is that the NOI is put in the name of the servicer.  The current holder of the note (who is not mentioned in the mortgage which is in the name of MERS) remains anonymous.

Courts have been letting the lender get away with failure to comply with the NOI requirements by either saying the listing the servicer is good enough, or by allowing the lender to fix a defective NOI and continue with the foreclosure.  A few months ago, Judge Berman (before he left Chancery??) came down with the Elghossain decision which echoed an earlier appellate decision (Chaudhri) which required dismissal without prejudice for a failure to comply with NOI/FFA.  Other cases held that the lender could cure a defect and continue with the foreclosure.  Laks came down on the side of Chaudhri/Elghossain and requires dismissal without prejudice.

Laks is not a complete victory for the borrower, but it does slow down the process by months.  In a landscape that is changing by the month, that can be a big plus.