CFED Assets & Opportunity Scorecard
More than 12.5 million homes have gone into foreclosure since 2007, according to a report from the Center for Responsible Lending. Foreclosure threatens the financial security of individuals and is a devastating experience for a household’s finances, as homeownership is still the single largest source of equity for American households. Although some of the systemic causes of foreclosures have been addressed, foreclosures continue to occur with little scrutiny, and, afterward, homeowners are left with few tools to recover. In the case of a foreclosure, if a property does not sell for a price that covers the value of the mortgage loan, a homeowner may be issued a deficiency judgment, making the homeowner personally liable for the full value of the unpaid debt.
Homeowners face foreclosure because of financial distress. Therefore, allowing mortgage holders to pursue deficiency judgments can create an overwhelming debt obligation from which a homeowner can never recover. States should abolish deficiency judgments or limit the amount or circumstances for which a mortgage holder can pursue them.
Strength of State Policies: Post-Foreclosure Protections
|Has state abolished or limited deficiency judgments? 1|
|Strength of policy|
|District of Columbia||—|
Notes on the Data
1. John Rao and Geoff Walsh, Foreclosing a Dream: State Laws Deprive Homeowners of Basic Protections, (Boston, MA: National Consumer Law Center, 2009). Updated data on deficiency judgments were provided through conversations in August 2015 with Geoff Walsh at the National Consumer Law Center. States receive credit if they have instituted limitations on when mortgage holders can pursue deficiency judgments, or if they have abolished deficiency judgments outright.
2. In 2014, Maryland amended its mortgage deficiency laws to reduce the statute of limitations from 20 years to 3 years.
3. Minnesota's anti-deficiency judgment protection is available only for foreclosures by advertisement. In almost all cases, residential foreclosures in Minnesota are foreclosures by advertisement.
4. Nevada prohibited deficiency judgments for loans made after October 1, 2009 to purchase primary residences.
5. In 2011, Tennessee modified its foreclosure law to limit deficiency judgments by requiring fair market value assessments.
How States Are Assessed
States receive credit if they have instituted limitations on when mortgage holders can pursue deficiency judgments, or if they have abolished deficiency judgments outright.
What States Have Done
Thirty-seven states have taken action to limit deficiency judgments against foreclosed-upon homeowners. Of those states, 26 have limited the instances in which mortgage-holders can pursue deficiency judgments, while another 11 states have abolished them outright.
Making the Case
Six Guidelines for an Effective Campaign1
1. Find your allies. When it comes to policy campaigns, there is strength in numbers. There are a wide range of stakeholders with a strong interest in limiting the impact of the foreclosure crisis. If a coalition does not already exist, think creatively about potential partners to approach, such as bar associations, housing advocates, labor organizations or realtor associations. Identify the organizations that are already engaged, as well as other organizations that may be valuable allies. Be prepared to help potential allies understand the issues, why they should be vested in seeking change and how they can contribute.
2. Consider a state task force. Consider convening a statewide foreclosure prevention task force with representation from a diverse set of stakeholders, such as government officials, community-based nonprofits, real estate agents and financial institutions. This strategy can raise the visibility of foreclosure problems in the state and lead to key recommendations for policy change. For example, because MCRC had a seat at the table for Maryland’s Task Force on Foreclosure Law, they directly informed the recommendations the task force made, which were later translated into reforms to Maryland’s foreclosure process.
3. Identify priorities and strategize accordingly. The nature and extent of the foreclosure crisis varies across states, and it is likely that some areas of a state may be hit harder than others. Given the variety of approaches to deal with foreclosures, it is crucial to identify and prioritize the strategies that will be most effective in a specific state. This prioritization should involve evaluating how the foreclosure crisis has affected the state thus far and the strength of the state’s housing market. It is important to listen to the feedback from groups on the ground and then find data that corroborates their experiences. This approach can, for example, shed light on whether the state should prioritize foreclosure prevention or assisting homeowners after foreclosure and community stabilization. Identifying priorities also has the benefit of keeping a clear and focused message.
4. Take the temperature of the political climate in your state. Take advantage of political momentum around strategies to deal with foreclosure, but be cognizant that states are facing extremely challenging fiscal climates. Pick your battles, or prioritize low-cost approaches that are more feasible and easily attained. In Maryland, MCRC understood that in 2011, they would have to tone down their next advocacy campaign and make a more subtle push that was under the radar, given the fatigue many lawmakers were feeling towards the reform.
5. Recruit influential champions. Early on, build relationships with strong champions within the legislature or the governor’s administration who are interested in foreclosure reform. With the media attention around the foreclosure crisis and the federal efforts to alleviate its impact, there is certain to be a strong proponent of foreclosure reform at the state level. For example, in New York, NYRL used the reputation they built over the past decade as a strong advocate for consumer rights to enlist the support of an engaged Banking Department Superintendent and his staff. Through this close relationship, they educated the department about servicing abuse and helped inform the most comprehensive set of mortgage servicing regulations in the country.
6. Plan the next step. Policy change is often slow and hard-earned, but when it is achieved, it is important to prepare for the next step. That next step may involve growing the movement, focusing on the next reform on the list of priorities, or assessing the policy change’s implementation. In New York, with servicing regulations now in effect, advocates have turned their attention to ensuring that the regulations are being properly enforced across the board so that homeowners can be assured of a fair foreclosure process.
1 CFED thanks Maya Brennan and Laura Williams of the Center for Housing Policy for their contributions to this section.
Since 2007, CFED has provided case studies that capture detailed stories of noteworthy state policy changes. Although the specific policies featured in theScorecard have changed over the years, these case studies still serve as instructive lessons drawn from both policy victories and defeats.
New York State Banking Department Adopts Groundbreaking Mortgage Servicer Regulations (published October 2011)
The need for regulation and accountability of mortgage servicers was dramatically illustrated by the ‘robosigning’ scandal in October 2010 and resulting lawsuit from the 50 state attorneys general. That scandal also catalyzed the New York State Banking Department to adopt what is widely regarded as the strongest set of regulations of mortgage servicers in the country. Click here to read more.
An Ongoing Partnership between Maryland Policymakers and Advocates (published October 2011)
Like many states, Maryland has experienced a staggering number of foreclosures in recent years. With the help of a governor who has been a strong ally to homeowners and consumer advocates on this issue, the Maryland Consumer Rights Coalition (MCRC) helped improve the state’s foreclosure process, create a mortgage foreclosure mediation program and win new protections for Maryland homeowners. Click here to read more.
Related Policy: Predatory Mortgage Lending1
A Pioneering Campaign in New Mexico (published September 2009)
As more mortgage loans were originated by brokers instead of bankers, states including New Mexico became vulnerable to predatory lending practices that flourished in the rapidly growing subprime lending market...Using its reputation as a grassroots organization that promotes resident-driven social transformation and public policy development, and its unique relationships with other organizations, USBC-FLC engaged a network of 16 partners to launch the Campaign to Stop Predatory Lending. The campaign’s mission: to work as a broad-based coalition to end predatory lending, racial segregation and discriminatory practices by traditional lending institutions. Click here to read more.
1 Although predatory mortgage lending is not a Policy Priority in the current Scorecard, it was in prior years and relates to foreclosure prevention and protections. In 2009, CFED published a case study on predatory mortgage lending.
CFED thanks Geoff Walsh from the National Consumer Law Center for his input and expertise on this policy issue.