New Rules for Foreclosure Cases in South Carolina (“Morgtage Modification Redux”)
The South Carolina Supreme Court has ordered new mortgage modification procedures to be followed in foreclosure cases in South Carolina. The intent of the new rules (the “2011 rules”) is to try to stem the tide of foreclosures in South Carolina, ensuring that foreclosure is a last ditch remedy instead of the first tool out of the box. Whether the new rules will accomplish this goal remains to be seen, but at least the Supreme Court is making an effort.
A little background is in order. In May 2009, the South Carolina Supreme Court, through Chief Justice Jean Toal, issued an order establishing new procedures to ensure that loans which were entitled to consideration under the government’s Home Affordable Modification Program (the “HAMP” program) were fairly evaluated and that lenders who voluntarily signed up for the program actually complied with the program’s guidelines. Despite those procedures, however, foreclosures have continued to increase. As Justice Toal states in the preamble to the new rules:
Since imposition of my prior order, the number of foreclosure actions filed in this State have continued to increase. The trial courts having jurisdiction over such actions have reported to this Court difficulty in making final disposition of these actions as a result of failed or delayed loss mitigation efforts between lender-servicers and mortgagor-debtors. As a result, the number of unresolved foreclosure actions has increased, with a resulting burden on the resources of the Court before which the action is pending.
The HAMP program is widely acknowledged to be a dismal failure. As Justice Toal notes, the program is plagued by reports of mishandled documents, lack of adequate of staff to process applications, failure to properly train staff, and failure to communicate. I could go on at some length, but suffice it to say that a program that depends on the mortgage servicing industry to handle modification applications efficiently is probably doomed to failure from the start. Justice Toal is much too professional to say that, but reading between the lines, that may have been her conclusion as well. This why the new rules don’t rely on the mortgage servicers to communicate with property owners about modification at all; foreclosure attorneys must now handle these communications.
That communication part of the new rules is a very significant provision, but it isn’t the only one designed to stem the flow of foreclosures where the property owner wants to modify the mortgage to try and keep his home.
First, the new rules don’t apply only to HAMP modifications. HAMP is available where the mortgage in question is guaranteed by Fannie Mae or Freddie Mac, or where the lender has volunteered to participate in the program. The 2011 rules apply to any “foreclosure intervention,” which is defined as “any policy, process or procedure employed by a Mortgagee for the purpose of seeking a resolution of a foreclosure action by loan modification or other means of loss mitigation.” Yep, it says “any.” So, if the lender has “any” loss mitigation or internal modification procedures, it must notify the homeowner of those options. If the homeowner elects to apply for any mortgage modification–or “foreclosure intervention,” to use Justice Toal’s term–the foreclosure litigation has to wait on the conclusion of that application. The lender can’t proceed with the foreclosure action at the same time.
As I read the rules, lenders can’t offer the homeowner the foreclosure intervention, deny the intervention and then foreclose, without offering the options again. So for example, say that you applied for a mortgage modification through your lender before you got behind on your payments, but your the lender lost your application, or didn’t get the documents you sent (or said they didn’t, at any rate) and then turned down your application. The 2011 rules seem to say that the lender can file a foreclosure action with the court, but at the same time, they have to send you information about their foreclosure intervention programs, give you the opportunity to re-apply, and this time handle all the paperwork through the lender’s attorney’s office.
No one knows whether the Court’s new order will help, and how the trial court judges will apply these new rules, but it’s certainly a step in the right direction. I applaud our Court for doing its best to ensure that hard working South Carolinians don’t needlessly lose their homes when they would otherwise qualify for mortgage modification. As William Jennings Bryant said over 100 years ago, “You shall not crucify mankind upon a cross of gold.” Let’s hope corporate America gets this message and gets it’s act together.