Reforming Foreclosure: The Uniform Non Judicial Foreclosure Act

By Nelson, Grant S.; Whitman, Dale A. | Duke Law Journal, March 2004 | Go to article overview

Reforming Foreclosure: The Uniform Non Judicial Foreclosure Act


Nelson, Grant S., Whitman, Dale A., Duke Law Journal


ABSTRACT

The Uniform Nonjudicial Foreclosure Act is one of the few creative approaches to mortgage foreclosure to emerge in many decades. In this Article, the authors examine why uniformity in foreclosure law among the states in desirable and, accordingly, advocate foreclosure reform. They analyze the Act, promulgated in 2002, giving specific attention to the Act's new methods of foreclosure by negotiated sale and by appraisal. They also examine the Act's numerous special protections for residential debtors and consider the effectiveness of the Act's procedures concerning subordinate leases, titles arising from foreclosures, surpluses and deficiencies resulting from foreclosures, and fairness of foreclosure prices. They conclude that the Act is fair and well balanced as between creditors and debtors and that it has the potential to make foreclosures more efficient, benefiting all affected parties. Finally, they argue that because a critical mass of state legislatures likely will not adopt the Act, Congress should consider enacting it as a federal statute.

TABLE OF CONTENTS

Introduction
   I. Mortgage Foreclosure in the United States--The Absence of
      Uniformity
   A. State Law Divergence: An Overview
   B. The Impact of the Secondary Market for Mortgages
   C. Efforts to Achieve Uniformity
     1. The Uniform Laws Approach
     2. The Restatement Approach
     3. Uniformity through Contract
     4. Congressional Preemption
II. The Foreclosure Sale
   A. The Status Quo: The Auction Sale and Its Alternatives
     1. What's Wrong with Auctions?
     2. The Special Problems of Foreclosure Auctions
     3. Empirical Evidence on the Fairness of Foreclosure
        Prices
   B. UNFA's Approach to Improving Foreclosure
      Dispositions
     1. Improving the Auction Sale Process
     2. Alternatives to Auctions: Foreclosure by Negotiated Sale and
        by Appraisal
   C. Summary
III. Protecting Residential Debtors
   A. Defining "Residential Debtor"
   B. Meeting to Object to Foreclosure
   C. Other Protections for Residential Debtors
     1. Agreements Fixing Standards of Performance
     2. Double Notices
     3. Notices Unclaimed or Sent to Incorrect Addresses
     4. Right to Notice of Default and Cure Period
IV. The Problem of the "Omitted Junior"
   A. The Judicial Foreclosure Analogy
   B. Preserving Junior Leases
   C. UNFA's Flexible Approach
   D. Unrecorded Leases
V. Postforeclosure Measures
   A. The Disposition of Foreclosure Surplus
   B. Deficiency Judgments and Personal Liability
     1. The Safe Harbor for Residential Debtors
     2. The "Fair Value" Limitation on Deficiencies
     3. Fitting UNFA into Existing State Law
   C. Nonjudicial Foreclosure Titles: The Quest for Finality
   D. Obtaining Possession after Foreclosure
VI. Should UNFA Be Enacted by Congress?
Conclusion

INTRODUCTION

"Uniform" is hardly a word that one would use to describe the current law of real estate finance. Mortgage law varies enormously from state to state and represents an often perplexing amalgam of English legal history, common law, and legislation. This disparity remains the reality despite numerous attempts during the past century to achieve greater uniformity, and despite the importance of the American mortgage market to the national economy.

In 2002, following four years of drafting, the National Conference of Commissioners on Uniform State Laws (Conference) promulgated the Uniform Nonjudicial Foreclosure Act (UNFA). (1) UNFA reflects the contributions of some of the nation's leading real estate finance practitioners and scholars. (2) It is designed to make American foreclosure law uniform by providing for the prompt and efficient nonjudicial liquidation of real estate collateral while affording substantial safeguards for defaulting borrowers. Residential borrowers receive special protection under UNFA. (3)

UNFA represents a major innovation in the foreclosure process. …

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