MEMORANDUMJanuary10,2012TO:ULCStudyCommitteeonMortgageForeclosureProceduresFROM:ThomasA.Cox,Esq.RE:CommentaryResponsiveto“IssuestoAddress”MemorandumofDecember7,2011_____________________________________________________________________________________

I.Introduction.

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AstheJEBURPAlettertotheULCCommitteeonScopeandProgramdatedMay30,2011(the“JEBPALetter”)asserts,thereisanational“foreclosurecrisis”.TheJEBURPAlettergoesontonotethat“substantialproblemshaveemergedwithservicers,lawfirms,and‘foreclosureprocessing’businesses.”

Followingthesecomments,theJEBURPAletterthenmakestheunwarrantedandcompletelyunsupportedleaptotheconclusionthat[m]anyoftheseproblemsreflectdivergence,uncertainty,andvariabilitynotonlybetweenstateswithsimilarforeclosuremethods,butalsowithinstateswhere(forexample)differentjudgeswithinthesamestatemayestablishdifferentrulesforforeclosureproceedingswithintheircourtrooms.

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

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TheauthorofthismemorandumrepresentedfinancialinstitutionsandtheFDICduringtheSavings&Loancrisisofthelate1980sandearly1990s.Therewasaheightenedlevelofforeclosureactivityatthattime,althoughnothingapproachingtheastonishingmagnitudeoftoday’scrisis.Theobservationsinthismemorandumaredrawnfromthatexperience,theauthor’snearlythirtyyearsofprivatelegalpracticeinfinancialindustryandbankruptcywork,andfromhashisfulltimeworkforthebetterpartofthelastfouryearsintheMaineAttorneysSavingHomes(MASH)projectthatisjointlysponsoredbytheMaineVolunteerLawyersProjectandPineTreeLegalAssistance.Theobservationssetforthinthismemorandumarethoseoftheauthoraloneanddonotconstitutepolicystatementsofthoseorganizations.Theauthorpracticesinajudicialforeclosurestateanddoesnotpresumetocommentuponissuesthatrelatetonon-judicialforeclosures.

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Itmustbenoted,however,thatamajorcontributingforcetotheforeclosurecrisishasnothingtodowiththeproblemsaddressedbytheJEBURPAreportandbythismemorandum,butarethedirectresultofthewildWestlendingandunderwritingenvironmentthatprevaileduntil2007.

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JEBURPAletterreportdatedMay30,2011,4

par.

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Draft,1/9/122ContrarytotheunsupportedconclusionintheJEBURPALetter,FederalReserveGovernorSarahBloomRaskin,speakingjustthreedaysagoonJanuary7,2012,didnotfinddifferingstateforeclosurestatuestobethecauseofproblemsintheforeclosureprocess.Rather,shefoundthat:Theseproblemshaveincludedcriticalweaknessesinmortgageservicers’foreclosuregovernanceprocesses,foreclosuredocumentpreparationprocessesandoversightandmonitoringofthird-partylawfirmsandothervendors.Raskin,www.federalreserve.gov/newsevents/speech/raskin20120107a.htm(lastvisitedJanuary9,2012).Similarly,thewhitepaperoftheFederalReserveentitled“TheU.S.HousingMarket:currentConditionsandPolicyConsiderations”http://www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf (lastedvisitedJanuary9,2012)submittedbyFedChairmanBenS.BernanketotheHouseandSenateonJanuary4,2012,notedthatinvestigationsofservicersfound“criticalweaknessesatallinstitutionsexamined,resultinginunsafeandunsoundpracticesandviolationsoffederalandstatelaws.”TheFederalreservewhitepapergoesontonotefourfactorswhich“mightcontributetoamorefunctionalservicingsysteminthefuture,butnotoneofthosefactorswasinvolvesoverridingthevariationamongstateforeclosurestatuteswithnewlegislation.TheJEBURPALetterfailstoconsiderwhatthecausesareofthe“substantialproblems”thatitfindstoexist.Noconsiderationwasgiventothequestionofwhetherandtowhatextenttheproblemshavebeendirectlycausedbytheforeclosureindustryitself,norwasconsiderationwasgiventowhethertheforeclosureindustryitselfhastheabilityandresponsibilitytocorrectmanyoftheproblemsthathavebeennotedbeforeremediallegislationisconsidered.Beforetherecanbeanydeterminationmadeastowhetherthereisaneedforanewuniformactdealingwithforeclosureissues,theremustbeanhonestaccountingof(1)whattheproblemsarethatcauselegislationtobeconsidered,(2)whathascausedthoseproblemstooccur,and(3)onlythen,whethertheproblemslendthemselvestoalegislativesolutionthatwouldbeofferedbyanewuniformact.Unfortunately,itappearsthattheJEBURPAletterofMay30,2011andallofthesubsequentstepsleadingtothisstakeholders’meetinghavefailedtoconductthestep2analysis.Further,itappearsthattheassumptionhasbeenmadethatnewlegislationisthesolutiontotheperceivedproblemswithouttherehavingbeenanalysisofwhetherothernon-legislativesolutionsmightbemoreappropriate.

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Draft,1/9/123AnexampleofthelackofanalysisofthecausesoftheproblemsunderconsiderationappearswithrespecttheissueraisedbyFHFAaboutassertedvariationsinevidentiarystandards.Withoutanyanalysisofwhythatisoccurring,itmakesnosensetojumptotheconclusionthatastatuteisneededtosetevidentiarystandardsforforeclosurecaseswherestatutoryproofrequirementsalreadyexistandrulesofevidencearefullydevelopedandinplace.Foreclosuresarecontrolledbystatuteandthosestatutesaregenerallyclearabouttheproofrequiredofapartyseekingtoforeclose.Itisopentodoubtthattheadditionofnewstatutoryrequirementswillresolvevariationsamongjudgesastohowtheychosetointerpretand/orenforcestatutoryrequirements.Onceacarefulanalysisisconductedastothecausesoftheissuesbeingraised,andonceconsiderationisgiventopotentialnon-legislativesolutions,theneedforanewuniformforeclosurestatutebecomesmurkyatbest.TheJEBUPALettergivesnoconsiderationtothefactthat,sincetheinceptionoftheUnitedStates,stateshavedevelopedtheirvariousforeclosurestatutesoveraperiodofmorethantwohundredyears,tomeettheneedsoftheirowncitizens.Thefactthedevelopmentofthesevariousstatuteshaveproduceddifferentmethodsofforeclosure,shouldbeconsideredtobeoneofthestrengthsofthiscountryratherthananobstacletobeovercomeforthebenefitoftheforeclosureindustrywhoseproblemsaremostlyofitsownmaking.Theauthorrespectfullysuggeststhatthestakeholders’meetingonJanuary13,2012shouldfirstaddresstheseissues.ItisfurthersuggestedthattheexpeditedtrackoftheStudyCommittee’sworkshouldbeslowedtopermitittoconductareasoned,fullandfairanalysisofthecausesandotherpossiblenon-legislativesolutionstotheproblemsunderconsiderationbeforemovingtoadecisiononwhethertorecommendthecommencementofauniformactdraftingproject.ThereasonsthattheworkoftheStudyCommitteehasbeensetonan“expedited”trackbytheJuly21,2011lettertoJEBURPAbyULCPresidentMichaelHoughtonarenotstated.ItisknownthataULCprocessofdraftinganewuniformactisgenerallyatwototwoandonehalfyearprocessandthat,evenifanewuniformactisproduced,thetimetopassageinthevariousstatesisanadditionalmulti-yearprocessofindeterminatelength.TheworkoftheStudyCommitteeandapotentialdraftingcommittee,iftheyweretoproduceanewuniformforeclosureact,arenotlikelytoproduceasolutionduringthepresentforeclosurecrisis.Theseimportantissuesaredeservingofadeliberateandcarefulreview,notanexpeditedreportproducedinonedayafteraninitialstakeholders’meetingisconcluded.