Toal's foreclosure order aims to reduce losses

State Supreme Court Justice Jean Toal has once again offered resident homeowners facing foreclosure a temporary reprieve.

Whether her order halting foreclosures on owner-occupied homes will help or only delay the inevitable remains to be seen. But it should at least get lenders and homeowners on the same page when it comes to loan modifications.

Attorneys for lenders who want to foreclose will be required to certify that the borrower was notified of his or her right to seek a loan modification, had a fair opportunity to respond, and the lender received and examined all documents and records required from the borrower to evaluate eligibility for foreclosure intervention.

After 30 days, the lender could certify the borrower refused to participate and only then could a foreclosure proceed. The lender would still determine whether a borrower qualified for the loan modification.

In May 2009, Toal issued a halt to foreclosures on owner-occupied homes guaranteed by Fannie Mae or Freddie Mac. That came at the request of Fannie Mae. The moratorium was meant to help struggling homeowners figure out whether they qualified for the federal loan modification program.

Toal's latest order, issued last week, indicates that it comes at the request of the trial court judges who handle foreclosures. The courts, she writes, have reported difficulty in making final dispositions on the cases because of a breakdown in efforts between lenders and debtors to mitigate losses, efforts that could benefit both parties.

"The trial courts report that such breakdowns are largely the result of difficulty in communication between lender-servicers and debtors, and the fact that foreclosure actions are proceeding to conclusion without regard to ongoing loss mitigation efforts by the parties," Toal writes.

Her order requires a resetting of that communication process and proof to the courts that it has happened.

The goal, she writes, is to make sure eligible homeowners and lenders have the opportunity to modify a loan or reduce their losses and to insure that procedures are handled uniformly across the state.

In foreclosure cases that were pending as of May 9, attorneys for lenders must document that they've communicated with borrowers as required by the court before any hearings on the merits of the case can proceed. If a foreclosure sale has already been ordered, the documentation must be provided before the sale can go forward. For foreclosure actions filed after May 9, the lender'sattorneys have to notify a debtor of his or her rights along with the foreclosure complaint.

Foreclosures help reset market values, and the more quickly we can get through this painful process the better for the market as a whole. The courts shouldn't allow the notification process for pending foreclosures to drag on too long. But loan modifications, agreed to by both parties, can preclude some homes from going into foreclosure and prevent the negative ramifications that foreclosure brings to neighboring properties.

We recognize that even after loan modifications, some homes could still end up in foreclosure. But foreclosure shouldn't come even as the parties are trying to work out a repayment plan, and it shouldn't come as a result of miscommunication.