Tuesday, April 10, 2012

"US mortgage and foreclosure law"

by Bill McBride on 4/10/2012 07:29:00 PM

Here is a very good overview (and fairly short) of US mortgage and foreclosure law by Zachary Kimball and Paul Willen at The New Palgrave Dictionary of Economics.

This article discusses title and liens, the differences between judicial states and non-judicial states, judgments and recourse, the Mortgage Electronic Registration System (MERS) and much more.

Here is an excerpt:

Two types of foreclosure by sale emerged in US law. The first is foreclosure by judicial sale, in which the lender petitions the court and the court orders a foreclosure auction. Judicial sale is available in every jurisdiction. The alternative approach is that, when the mortgage is originated, the borrower gives the lender the right to carry out a foreclosure auction in the event of default, a right known as the ‘power of sale’ (Osborne, 1951, p. 992). Although rare in the early 19th century, power-of-sale foreclosure became more common in the USA over time (Osborne, 1951, p. 993).

Power-of-sale foreclosure is available in a majority of states. In general, states in the south and west of the country offer power of sale and states in the north and east are judicial; whether power-of-sale or judicial foreclosure is the preferred method aligns almost exactly with whether the state follows title or lien theory, respectively. Of the states with the most severe foreclosure problems in the current crisis, Arizona, California and Nevada all allow power-of-sale foreclosure, while Florida only allows judicial foreclosure. Other notable judicial states include Illinois, New York and New Jersey. For fuller discussion of judicial and power-of-sale foreclosure, see Gerardi et al. (2011) and National Consumer Law Center (2010).

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