General Assembly Proposals: Judicial foreclosure

If Senator Don McEachin (D-Richmond) has his way, a major shift in the method of foreclosures may be in store for residents of the Commonwealth.  The proposal submitted in SB798 would convert Virginia's current non-judicial foreclosure sale system into a judicial foreclosure sale system.

Virginia's Current system: non-judicial foreclosure.

In Virginia's current system foreclosure sales are conducted by a Trustee appointed by the lending institution but legally representing the interests of the lender, and the owner.  The Trustee must follow some formal notice requirements under Virginia law but the distressed homeowner must file a case themselves if they seek court intervention to stop or ensure fairness with the foreclosure.  The knowledge barrier to filing a new case often keeps unrepresented litigants out of the court system and allows for foreclosures to occur with less interference.

Proposed system: judicial foreclosure

SB798 would require a lawsuit be filed (it is not clear if the lawsuit is filed by the Trustee or the creditors) requesting the right to proceed with foreclosure.  This system provides a more formal notice to the distressed owner in the form of formal service of process, as well as an active forum to raise legal objections to the sale.  The result will likely be some delayed foreclosures for illegitimate reasons, but more importantly delayed and cancelled foreclosures in order to fix faulty documents.  This would be a dramatic change from the current system in Virginia which occurs out in the open but with only moderate oversight.  There is an ethical requirement for attorneys involved in this process that may be the unsung benefit of moving to judicial foreclosure.

Do not worry too much about the banks and trustees.  If the bill passes it (for the most part) only affects new mortgages starting in July 2011.  All the preexisting mortgages will be largely unaffected.  Banks and Trustees after July 2011 will have a decent picture of their altered rights in the marketplace.

Prediction: The bill does not have enough detail to let people know even how this judicial foreclosure process will work.  Legislators will be hesitant to vote for a drastic change to our foreclosure system without details about how this will solve any real or perceived problems.  It probably will be tabled in the Senate Courts of Justice Committee or withdrawn.  Sen. McEachin and Delegate Bob Marshall have some other ideas that more directly address problems with our foreclosure system.