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Bankruptcy Law

I've always heard that a non-judicial FC is...

Resolved • Response time 2 hours 6 minutes

3 Jun 2013

I've always heard that a non-judicial FC is only allowed unless a judicial challenge is made to the legality of it, and if so, it must be converted to a judicial FC. Meaning, of course, whomever gave their POA to the lender to foreclose based on the terms of the deed and note, but if this individual challenges the legality of the non-judicial foreclosure, that it must be converted to judicial by virtue of the constructive notice given the note/deed holder vis-à-vis being served with the complaint, and appropriate lis pendens filed. If true, is this as a pure function of law relative to ANY administrative process being challenged in court, and/or are there statutes/case law specific to judicial and non-judicial foreclosure? Obviously, if either of these are correct, then the courts have constantly ignored same, as MANY non-judicial FC's are challenged in court, but only a small percentage are given stays until the case filed is adjudicated, and I've never read any verbiage stating something like "due to borrower's judicial challenge to deed/note holder's non-judicial right to foreclose, this case is being converted to a judicial action".
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3 Jun 2013

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Bankruptcy Lawyer's response
3 Jun 2013
Roger
Roger
Litigation Attorney
I don't think challenging a non-judicial foreclosure automatically requires the foreclosure to convert to and complete as a judicial foreclosure. The judicial challenge would be a lawsuit, and the challenging party could ask the court for an injunction to stop the foreclosure until the case is resolved, but that's it. Ive never seen a judicial foreclosure be required by a court just because a lawsuit was filed regarding the underlying loan.
3 Jun 2013
Customer reply
3 Jun 2013
Are you saying that you're certain it is not a statutory or equitable requirement - hey - they've ignored tons of them in this FC business, so just because something has not been enforced seems to me does not automatically mean it is "the law". my understanding is that the only basis for a non-judicial FC is that there is no issue at law to be determined, and by extension, if any such challenge claiming controversy is brought, that effectively quashes any standing claimed to go non-judicial. At the simplest, they're operating off your POA, I'm thinking there's also verbiage in the deed and maybe also the note that gives you the right to bring a legal challenge, and that could be interpreted as stating that if you do bring a challenge it stops the non-judicial process, so if you make a legal challenge saying they are not adhering to the agreement (note and deed) or even revoke the POA, I would think it would rob them of standing to continue non-judicially. If you've revoked the power they claim gives them standing to foreclose non-judicially, it seems to me it would work the opposite of what actually happens - THEY should have to get the court to allow them to continue non-judicially. Could it be that it's just never been brought up in this light? You know how lawyers are - they hate to go outside the safe confines of what has gone before! ;) Are you familiar with any statutes/case law relative to similar non-judicial administrative processes that ARE impacted by a judicial challenge? If there is, I would think that if the processes are similar enough to non-judicial FC, that that law would also control in foreclosure law, and again, that it just has not been presented in that light yet.
3 Jun 2013
Bankruptcy Lawyer's response
3 Jun 2013
Roger
Roger
Litigation Attorney
I'm not aware of any federal or state law, or case law, that says if a borrower files suit regarding a mortgage loan or underlying note that the non-judicial foreclosure must be judicially foreclosed. It really doesn't make sense for this to be the case because a foreclosure MUST be instituted by the lender - - judicial or non-judicial. SO, if the borrower sues the lender under some claim regarding the mortgage loan/note, then it would not be a foreclosure action. Thus, this filing would not stop the lender from proceeding with foreclosure EVEN IF the borrower sued it UNLESS the borrower asked for an injunction. Thus, the only way the foreclosure would be stopped is by filing this suit and then getting an injunction against the lender based on the fact that the loan/mortgage subject to foreclosure is in litigation. The court would have authority to issue an injunction, but the court should not have the authority to require a judicial foreclosure if state law allows for non-judicial foreclosure sales.
3 Jun 2013
Customer reply
3 Jun 2013
OK, but what about if you revoke the POA you gave them that gives them the right to act non-judicially in your stead? If there is no verbiage stating that it is not revocable, isn't any such revocation governed by relevant statutes, and specifically those which state a POA is revocable upon giving of notice?
3 Jun 2013
Bankruptcy Lawyer's response
3 Jun 2013
Roger
Roger
My knee-jerk reaction would be that in the pile of paperwork that was signed, there's a provision that says the poa is not revocable, or that the right to revoke the poa is waived. Also, deeds of trust have power of sale provisions, which gives the lender the right to conduct a non-judicial foreclosure even without a poa. However, if this lender reserved no rights and if the deed of trust has no power of sale provision, then what you're suggesting may be possible. I've never seen a loan package where the lender didn't have a provision that guaranteed it could foreclose non-judicially; but, that's not to say that this loan is like all others. But, you really need to have someone (an attorney preferably) to review the loan documents to determine what rights may be available.
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Roger
Roger
Litigation Attorney
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3 Jun 2013
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