Foreclosure Laws Should be Uniform, Says Ghent

By Stevie Duffin Updated on 12/14/2012

By Daniel Duffield

According to a new research article, state-enforced foreclosure laws which are still in effect today were originally created for an economic scenario that far differs from the current trends in the housing market.

Andra Ghent, professor of real estate at Arizona State University’s W.P. Carey School of Business, believes that these differences in mortgage laws can have tangible and noticeable consequences. Studying foreclosure laws as they have shifted for the past 200 years, Ghent notes that the current foreclosure laws are not enforced with any economic gain or basis for constancy to these outdated regulations.

Rather, Ghent demonstrates that many state-specific guidelines for foreclosure have been the result of minor occurrences in history, such as rulings of individual judges or differences in law wording. According to Ghent, many of these foreclosure proceedings arose prior to the American Civil War.

In general, states which require that foreclosure be resolved in court carry much longer timelines for the proceedings. For instance, states such as New York, New Jersey, and Florida have a large amount of backlog properties and among the longest foreclosure timelines, in contrast to states such as California and Arizona, which do not require any additional proceedings in court and as a result have significantly smaller foreclosure backlogs with shorter timelines.

Essentially, state regulation on foreclosure has become a major factor in the current U.S. housing recovery.

Ghent also stated that resolving the current ails of foreclosure will result in a positive outcome for the U.S. economy overall, as longer timelines contribute to property deterioration and devaluation. Ghent says that a rapid foreclosure process will be best and will afford borrowers a more speedy recovery afterward.

While the research did not indicate whether judicial or nonjudicial states decreased the prevalence of foreclosure, Ghent’s research demonstrates that nonjudicial states had a greater number of foreclosures before the onset of the Great Depression.

The research paper additionally revealed that states with increased farm foreclosures during the early 1930s prohibited deficiency judgments which allow banks to seek repayment for outstanding debt even after the foreclosure process has been completed. Ghent’s paper was sponsored by the Research Institute for Housing in America, which in turn is managed by the Mortgage Bankers Association (MBA).

One particular reason behind longer foreclosure timelines for judicial states is the result of lenders disregarding proper court procedure, as evidenced in the “robosigning” scandal in which banks utilized signature forgeries when attempting to expedite the foreclosure process.

Ultimately, Ghent believes that states should adhere to a uniform code of foreclosure proceedings, a proposal which has been made at least four times within the past hundred years. Ghent says, “Can you imagine how much money, time and resources we could save, if we didn’t have 50 different sets of laws, paperwork and legal-expertise requirements?”