Insights

These days, it is not uncommon for state courts to “legislate from the bench,” particularly in the context of mortgage foreclosure actions. In a recent example of filling gaps in legislation regarding residential mortgage foreclosure actions, the Indiana Supreme Court ordered a task force to recommend steps and best practices in dealing with mortgage foreclosures. On January 3, 2011, the court adopted the task force’s guidelines and posted a bulletin of “Mortgage Foreclosure Best Practices” on its website. Indiana Attorney General Greg Zoeller has filed a petition with the Indiana Supreme Court asking the court to adopt the guidelines as requirements rather than recommendations.

Currently, the guidelines are not enforceable laws. Instead, they are designed to provide consistent guidance on certain practices. A task force, which was comprised of the Indiana Attorney General, the Indiana Division of State Court Administration, Indiana trial judges, academics, and other experts in creditor-debtor law, developed the guidelines in order to improve the processing of mortgage foreclosure proceedings. Specifically, the task force intended for the best practices to fill gaps left by legislation adopted in 2009 under which borrowers have the right to request a settlement conference. In his petition to the Indiana Supreme Court, Attorney General Zoeller states his belief that these best practices are necessary for the protection of homeowners. If the Indiana Supreme Court grants Attorney General Zoeller’s petition, the mortgage foreclosure best practices would be enforceable, and mortgage lenders would face liability for non-compliance with the guidelines in mortgage foreclosure actions in Indiana courts.

Among other things, the proposed guidelines would require lenders seeking foreclosure to produce the original signed mortgage note (or other legal proof if the lender cannot locate the original) and the chain of title proving that the lender has the right to enforce the note. Lenders would be prohibited from asking the borrower to waive his or her legal right to a settlement conference, and would be required to file a settlement conference report with the court before the judge could take final action in a foreclosure proceeding. Lenders would also be prohibited from filing a dispositive motion until after the settlement conference report is filed with the court. Most significantly, the guidelines would allow courts to impose monetary sanctions on lenders who fail to comply with the best practices.

It is unclear whether the Indiana Supreme Court will grant Attorney General Zoeller’s petition. However, the mere existence of the petition should act as a reminder to mortgage lenders to track not only legislative and regulatory developments in the states where they do business, but also to keep close tabs on activity in the judiciary branches of the states in which they do business. More and more state courts are adopting new, more stringent foreclosure requirements. Mortgage lenders must stay on top of these developments in order to stay compliant.

Catharine S. Andricos is an associate in the Washington, D.C., office of Hudson Cook, LLP. Catharine can be reached at 202-327-9706 or by email at candricos@hudco.com.