Wednesday, May 06, 2009

South Carolina Halts Thousands of Home Foreclosure Sales

SC court halts thousands of home foreclosure sales


COLUMBIA, S.C. (AP) — South Carolina's highest court on Tuesday temporarily stopped thousands of pending foreclosure sales in the state to give homeowners more time to take advantage of a new federal program to help them refinance mortgages.

The injunction — which mortgage experts said appeared to be the nation's first court-ordered stop for an entire state — prevents judges in South Carolina from finalizing foreclosure sales on properties guaranteed by Freddie Mac, Fannie Mae or any other mortgage company that has signed on to a federal assistance program.

RealtyTrac Inc., a foreclosure listing firm, says the ruling could affect 5,000 South Carolina homes facing foreclosure.

The ruling was in response to a request from a Columbia attorney representing Fannie Mae, who had argued that it was necessary to keep homeowners who might be eligible for federal assistance from being shut out of the process.

"Absent the injunction, mortgagors eligible for relief ... could be denied their right to participate because their property was sold at the foreclosure sale," lawyer Ronald Scott wrote in his three-page motion. "This qualifies as irreparable injury for which the court should provide redress in the form of a temporary injunction."

Fannie Mae said the ruling was necessary because of a South Carolina law meant to ensure that foreclosures sales are conducted in a timely fashion. Under the law, judges can cancel a foreclosure case and start over if the sale is delayed for too long.

The company argues that South Carolina's law gives lenders an incentive to speed up foreclosure cases because of the threat the process could be restarted, which would cost lenders more money.

"This ruling will allow us the flexibility to evaluate problematic mortgages in the state for possible eligibility for the (Obama) Administration's modification program and reduce the overall borrower and company costs associated with the foreclosure process," Fannie Mae said in a statement.

The Obama administration announced a plan in March to provide $75 billion in incentives for the mortgage industry to modify loans to help borrowers avoid foreclosure. Freddie and Fannie also rolled out a refinancing program for homeowners who owe up to 5 percent more than current total value of their home with an application deadline of June 2010.

Scott had asked the court to address about 1,000 South Carolina homes facing foreclosure and backed by Fannie Mae loans. But in her order, state Supreme Court Chief Justice Jean Toal expanded the stoppage to foreclosures backed either by Fannie or Freddie — together, the government-controlled companies own or guarantee almost 31 million mortgages, more than half of all U.S. home loans — or any other lender who has agreed to participate under the Obama administration's plan.

Toal also set a May 15 deadline for plaintiffs in foreclosure actions to notify other parties if the loan is subject to modification under the federal program. If it is, those foreclosure proceedings will remain on hold. But if not, the sale can go forward.

Fannie Mae and Freddie Mac had suspended foreclosure sales through the end of March to evaluate whether borrowers could qualify for the Obama program.

A spokesman for Freddie Mac, Brad German, said Tuesday the South Carolina ruling was the first he'd heard of in the country by a court with statewide jurisdiction.

"We're not aware of anything like this, anywhere else," German said.

Nationally, the number of homes facing foreclosure grew 24 percent in the first three months of this year from a year earlier. The total in 2008 was 2.3 million households that received foreclosure filings. In South Carolina, more than 13,700 homes are in some stage of foreclosure, according to RealtyTrac Inc., a foreclosure listing service in Irvine, Calif.

RealtyTrac spokesman Daren Blomquist also said the ruling appeared to be a first.

"There have been some piecemeal things, but nothing that broad statewide," Blomquist said.

Associated Press Writers Katrina A. Goggins and Alan Zibel contributed to this report. Zibel contributed from Washington.

On the Net:
Making Home Affordable program:

Fannie Mae seeks foreclosure freeze only in S.C.

By Ashley Fletcher Frampton
Published May 6, 2009

Mortgage-backer Fannie Mae said it singled out South Carolina for an unusual court-ordered freeze on home foreclosure sales because the state gives local judges the authority to dismiss delayed cases, which other states do not.

Fannie Mae isn’t seeking a similar temporary freeze in other states, said Brian Faith, spokesman for the mortgage company.

“In South Carolina, judges have the discretion to cancel an ongoing foreclosure process if there is a significant delay between the foreclosure judgment date and the actual foreclosure sale,” Faith said in a statement.

If masters-in-equity — the special county judges that usually handle foreclosures in South Carolina — were to dismiss delayed cases, “the process begins anew, which leads to higher costs and losses,” Faith said.

“The court ruling effectively addresses this situation,” he said.

Fannie Mae suspended its foreclosure proceedings in late 2008 and during the first of quarter of 2009 while it reviewed cases for potential workout strategies, Faith said. In some cases, that created significant delays.

At Fannie Mae’s request, the S.C. Supreme Court issued a temporary restraining order late Monday afternoon on foreclosure sales for some homes. It targets properties that could be eligible for a mortgage modification program that President Barack Obama’s administration is rolling out. The program offers more affordable mortgage payments to homeowners whose loans are backed by Fannie Mae or Freddie Mac and who meet certain other criteria.

Fannie Mae did not want homeowners potentially eligible for the program to lose their homes in foreclosure before they had a chance to participate. The mortgage company estimates that more than 1,000 homes in South Carolina were headed to foreclosure sales this week. It filed the petition for a temporary restraining order on Friday.

Obama announced the Home Affordable Modification Program in February, but details were not outlined until April 6.

Masters-in-equity say they are still sorting through the implications of the S.C. Supreme Court order, which requires lenders seeking foreclosure to submit affidavits by May 15 stating whether loans in default are eligible for the modification program.

Homes not eligible will continue in the foreclosure process, according to the restraining order.


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