There has been a recent flurry of activity in Washington D.C. affecting how we must underwrite foreclosure sales. The full impact of these changes is still not known as additional guidance and legislative action is anticipated. However, it is important that all agents involved in underwriting foreclosure or REO sales are aware of these changes and incorporate them into their processes and procedures.
Assignments of Notes/Deeds of Trust
On October 27, 2010, the Attorney General of Washington, D.C. issued a Statement of Enforcement Intent Regarding Deceptive Foreclosure Sale Notices ("the "Statement"). You may obtain a full copy of the Statement at the following link http://newsroom.dc.gov/show.aspx?agency=occ§ion=2&release=20673&year=2010&file=file.aspx%2frelease%2f20673%2fforeclosure%2520statement.pdf. The essence of the Statement is that all assignments of notes and deeds of trust must be recorded at the Recorder of Deeds and that failure to do so is a violation of the Consumer Protection Procedures Act.
This Statement raised a number of significant issues, the biggest being whether failure to record would invalidate a foreclosure sale. The OAG's office received numerous comments from industry participants and on November 16, 2010 issued a series of Questions and Answers in an attempt to give guidance to the Statement. You may obtain a full copy of this at the following link http://newsroom.dc.gov/show.aspx?agency=occ§ion=2&release=20769&year=2010&file=file.aspx%2frelease%2f20769%2fforeclosure%2520statementQAs.pdf.
Most important to our industry, the Q&A's do state that failure to record, by itself, will not invalidate the foreclosure. However, the Q&A's make it very clear that prior to issuing a notice to foreclose, lenders are required to record assignments of their deeds of trust and an acknowledged copy of the promissory note showing the foreclosing lender as the current owner of the note and secured party under the deed of trust.
Accordingly, when insuring any foreclosure sale which occurred after October 27, 2010, the Title Commitment must contain a requirement substantially similar to the following:
Evidence that prior to or contemporaneous with the issuance of the foreclosure notice, (i) the deed of trust being foreclosed was assigned of record to the foreclosing lender, and (ii) an acknowledged copy of the promissory note and/or assignments evidencing the foreclosing lender as the holder of the note was recorded in the land records.
Additional guidance on this requirement will be forthcoming as we gain more information from the Attorney General's Office.
In another surprise move, the DC Council passed emergency legislation requiring that prior to the commencement of foreclosure on a single family residence; the lender must offer the borrower an opportunity to mediate the dispute. The bill was passed on November 9, 2010 and signed by the Mayor on November 17, 2010. Since this was passed as emergency legislation, the bill will only be effective for 90 days.
The bill is very complex and has numerous requirements that must be complied with in order to comply with the mediation requirement. For our purposes, this bill essentially creates a moratorium on foreclosure sales for the next 90 days. This is because, among other things,
1. The bill requires that a notice of default be issued prior to the issuance of a foreclosure notice. This notice must be in a format and contain such information as the Mayor, by rule, shall prescribe. No such rule exists and it is unclear when during the 90 day life of the bill this rule will be issued.
2. Prior to issuance of a notice to foreclose, the lender must obtain and record a mediation certificate. Much of the bill deals with the procedures for offering mediation and obtaining a mediation certificate. This includes the sending of a mediation election form in a form prescribed by the Mediation Administrator (which does not exist). The mediation itself must be conducted in accordance with rules which are to be issued by the Mayor (which do not exist).
Under the circumstances, STG has decided that all agents must obtain specific STG underwriter approval if seeking to insure any foreclosure sale which occurs after November 9, 2010. We anticipate additional updates to this Bulletin when it appears that final legislation with rules and regulations are implemented or the emergency legislation expires with no replacement.
If you have questions relating to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.
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