D.C.’s New Progressive Judicial-Foreclosure Approach Involves Court Oversight And Early Mediation
If you are a troubled homeowner in D.C. facing foreclosure today, you have a much better chance of resolving the issue early in the process. D.C. now has a new progressive, judicial-foreclosure approach, where there is court oversight and early mediation. Prior to 2014, D.C. was solely a non-judicial foreclosure jurisdiction.
Non-judicial is defined as no court involvement prior to a foreclosure. The non judicial process is short. If everything goes according to D.C. law, the property can be foreclosed upon within 60 days of a default. The lender’s right to foreclosure without a judge reviewing the process is based on a provision in the mortgage documents signed by the borrower at the time of the sale.
Here’s how the progressive transition started; to help struggling homeowners stay in their homes, D.C. passed the Saving D.C. Homes from Foreclosure Emergency Act in November 2010 (Act). The Act created a residential foreclosure process which required lenders to among other things, participate in mediation and obtain a mediation certificate. D.C.’s Department of Insurance, Securities and Banking (DISB) monitored this process. A foreclosure timeline through the DISB mediation can be done in 6 to 8 months, or longer, depending on the lender.
Lenders and title insurers did not like the changes stemming from the Act. Why did the lenders and title insurers dislike the Act? The main reason was that the Act stated that a foreclosure sale was invalid if the lender did not comply with all the Act’s requirements. The problem for lenders was without a court order from a judge confirming compliance with the Act, they did not have legal proof that the foreclosure sale met all the requirements of the Act. This uncertainty made lenders and title insurers uneasy. So what did the title insurers do? The title insurers stopped insuring titles to residential properties purchased in a foreclosure sale for approximately 3 years in D.C. This resulted in very few residential foreclosure sales in D.C. from 2010 until 2013. To resolve this issue, in 2013, D.C. passed a law amending the Act. D.C. law now states that if a mediation certificate is issued through the DISB, then the mediation certificate is proof of legal compliance with the Act.
In 2014, to help troubled homeowners and to give clarity to the foreclosure process, D.C. came up with new procedures for foreclosure cases. With this new approach, D.C. now has both a non-judicial foreclosure process through the DISB and judicial-foreclosure process. The new approach was a shared effort by judges, lender’s attorneys, borrower’s attorneys and housing advocates. If there is no resolution at the early mediation stage, then the case is placed on a regular civil lawsuit track, where the parties have the opportunity for a second mediation in a later stage of the foreclosure court case.
So how is this new judicial-foreclosure approach different? The biggest difference is early mediation. The foreclosure cases are consolidated with one or two judges knowledgeable about foreclosure issues. There are legal service attorneys and housing counselors sitting in the courtroom waiting to help homeowners without atttorneys. The atmosphere in these early foreclosure hearings is hopeful. The first thing the judge does is to ask the legal service attorneys and housing counselors to identify themselves. The judge then encourages borrowers without attorneys to reach out to the attorneys and the housing counselors sitting in the courtroom. All of the housing counselors sit together wearing bright blue shirts.
D.C.’s new new judicial-foreclosure process is a huge benefit for homeowners. I have represented countless homeowners facing foreclosure in both D.C. and Maryland. The best outcome for homeowners facing foreclosure have been the cases where I or some other foreclosure defense attorney is involved at the onset the of the case. This is a crucial time to negotiate with the lender for any number of loss mitigation options including loan modifications, repayment plans, a short-sale, a deed-in-lieu of foreclosure, or a small cash subsidy paid by the lender to the homeowner after a foreclosure sale.