That case, Larsen v. Wells Fargo Bank, is the most recent in a long line of cases discussing the standard of strict compliance established in cases including Jackson v. MERS (2009) and Ruiz v. 1st Fid. Loan Servicing (2013).
In Ruiz, the court said that all assignments of a mortgage must be recorded before the mortgagee begins the process of foreclosure by advertisement. The bank had filed its assignment the same day, which did not convince the court, which said that without strict compliance with this requirement, a foreclosure by advertisement is void. Strict compliance was part of the law before Ruiz, although some courts (including the district court in Ruiz) accepted substantial compliance, explained attorney Jonathan Drewes, who represented the plaintiff.
In a subsequent foreclosure case in federal court, Judge Patrick Schiltz noted, “The Supreme Court is not kidding when it says that the foreclosure-by-advertisement statutes must be strictly construed.”
The Ruiz result has made foreclosures by advertisement less litigious because there are clear-cut rules, said Drewes, of Drewes Law in Minneapolis. “Do it right, and you can,” he said.
Mortgagees are more likely to voluntarily back off to avoid the costs of a problematic foreclosure and a voided sale. Clients can pay only a few hundred dollars for a letter from an attorney as opposed to fees to contest a foreclosure. In a foreclosure by advertisement, where the deficiency is waived if the property is sold for less than the debt, the mortgagors options typically are more limited.
The strict compliance rule also protects the interests of the foreclosure firms that do a good job, Drewes added. It’s difficult to do a good job on an occasional foreclosure, he said. “Follow the statute. Team up [with another lawyer], refer it out, or proceed with foreclosure by action [in court]” he advised.
Of course, the mortgage foreclosure business has been halted by the pandemic, but Drewes expects that to change soon. Moratoriums imposed by Fannie Mae and Freddie Mac are scheduled to expire at the end of June. If they do, it will take some time for the process to ramp up, he said, anticipating sheriff’s sales in the fall and property going on the market in the spring.
However, Drewes noted, the housing market is booming and some mortgagors may be able to sell and avoid foreclosure. “Foreclosures are going to be interesting because property prices have gone up,” Drewes continued. “There could be substantial equity in the property.”
Alternatively, the banks may bid low on the property because they don’t want the property and want the owner to sell it, he said. “Sometimes homeowners make money.”
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