Mortgage Foreclosures and the Home Affordable Modification Program

The Chief Justice has issued an administrative order to provide uniform procedures in mortgage foreclosure actions for addressing issues related to the Home Affordable Modification Program (HMP).

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2009-05-22-01

The Supreme Court of South Carolina

RE:   Mortgage Foreclosures and the Home Affordable Modification Program (HMP)

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ADMINISTRATIVE ORDER

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On March 4, 2009, the United States Treasury Department (Treasury) issued Guidelines on mortgage loan modifications under the Home Affordable Modification Program (HMP) for residential loans owned, securitized or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).[1]  The HMP is part of the Making Home Affordable Program (MHAP).

Subsequently on April 6, 2009, Treasury issued Supplemental Directive 09-01,[2] which provided additional guidance to servicers for adoption and implementation of the HMP for residential mortgage loans that are not owned, securitized or guaranteed by Fannie Mae or Freddie Mac.  For this latter category, the HMP is only applicable if the servicer has agreed to participate in the HMP.[3]

If applicable, the HMP requires the temporary suspension of foreclosure actions.[4]  The HMP is scheduled to expire on December 31, 2012, and has no application to a mortgage originated after January 1, 2009.

On May 4, 2009, I issued a temporary restraining order (TRO) based on a motion filed by Fannie Mae.[5]  This TRO had to be issued on an ex parte basis, and it was anticipated that it would be replaced by a subsequent order. 

To insure that eligible homeowners have been afforded the benefits available under the HMP, the procedures for handling issues relating to the HMP are handled uniformly throughout the State, and mortgage foreclosure actions are not unnecessarily dismissed or delayed while HMP issues are resolved, I direct the following:

(1) Actions Filed After May 4, 2009.  In all mortgage foreclosure actions filed after May 4, 2009, the complaint (or amended complaint) seeking foreclosure shall contain “a short and plain statement of the facts”[6] regarding the applicability of the HMP to the matter.  For mortgages involving commercial property, the complaint may simply allege that the property is commercial and that the HMP is inapplicable.[7]

For mortgages involving residential property, the complaint shall state if the mortgage loan is owned, securitized or guaranteed by Fannie Mae or Freddie Mac, or if the servicer is participating in the HMP.  If so as to either, the complaint shall state the facts showing that the loan is not subject to modification under the HMP,[8] or state the facts showing that the HMP modification process specified by the Guidelines or Supplemental Directive has been completed without resulting in a modification.[9]  If these allegations are contested by the answer or the judge allows the issue to become contested at some later stage of the proceeding, any dispute regarding the eligibility of the mortgage loan for modification under the HMP or the satisfaction of the requirements of the HMP if it applies, shall be resolved like any other contested issue in a mortgage foreclosure case.  Sections (3) and (4) of this order relate to the effect of the HMP determinations made by the judge.   

(2) Actions Pending on May 4, 2009.  In all mortgage foreclosure actions pending on May 4, 2009, the party seeking foreclosure should have served the affidavit required by the TRO by May 15, 2009.  If the affidavit was timely served under the TRO, any counter affidavit asserting that the loan is subject to modification under the HMP or that the requirements of the HMP have not been meet, should be served by May 22, 2009.

If the party seeking a foreclosure did not serve the affidavit by May 15, 2009, as required by the TRO, the matter will be stayed until the party seeking foreclosure serves and files an affidavit regarding the applicability of the HMP to the matter.  For mortgages involving commercial property, the affidavit may simply allege that the property is commercial and that the HMP is inapplicable.

For residential mortgages, the affidavit shall state if the mortgage loan is owned, securitized or guaranteed by Fannie Mae or Freddie Mac, or if the servicer is participating in the HMP.  If so as to either, the affidavit shall state the facts showing that the mortgage loan is not subject to modification under the HMP, or state the facts showing that the HMP modification process specified by the Guidelines or Supplemental Directive has been completed without resulting in a modification.  In the alternative, the affidavit may concede that the matter should be stayed until the HMP modification process is completed.  If the affidavit is not served within ninety (90) days of the date of this order, the foreclosure action may be dismissed.   If the affidavit is served, any other party to the action shall have ten (10) days to serve a counter affidavit.

A copy of any affidavit or any counter affidavit (whether served before or after this order), along with proof of service, shall immediately be filed with the court where the action is pending.

The judge shall consider the affidavit and any counter affidavit that may be filed to determine if there is any contested issue that must be resolved regarding the eligibility of the loan for modification under the HMP or satisfaction of the requirements of the HMP if it applies.  If so as to either, the judge shall resolve this issue like any other contested issue in a mortgage foreclosure action.  If a counter affidavit is not timely served, the determination of whether there are HMP issues which need to be resolved before foreclosure is ordered or the sale is commenced shall be based on the affidavit alone unless the judge allows the late service and filing of the counter affidavit or allows the issue to become contested at some later stage of the proceeding.   Sections (3) and (4) of this order relate to the effect of the HMP determinations made by the judge.

(3) Determination that the HMP is Applicable But the HMP Process Has Not Been Completed.  If a judge determines that the HMP is applicable but that the process to determine if a modification will be made under the HMP has not been completed, the foreclosure action shall not be dismissed but shall be stayed until the HMP process is completed (including any trial period before a modification becomes effective).  If the action is stayed, the party seeking foreclosure will advise the court of the status of the matter every thirty (30) days; the failure to do so may result in dismissal of the action.  If the loan is modified under the HMP, the parties shall immediately notify the judge so that the mortgage foreclosure action can be dismissed.  Nothing in this order shall be construed as preventing the party seeking foreclosure from voluntarily dismissing the foreclosure action.[10]

(4) Determination that Mortgage Loan is Not Subject to Modification under the HMP.  If a judge determines that the HMP is either inapplicable to the mortgage loan or that the HMP requirements have been satisfied without resulting in a modification, the foreclosure action may continue.  This includes the consummation of any sales conducted on or prior to May 4, 2009.

(5) TRO Rescinded.  The TRO previously issued by me on May 4, 2009, is hereby rescinded.  Instead, the provisions of this Administrative Order shall govern foreclosure actions potentially affected by the HMP.[11]

(6) Judicial Sales in Mortgage Foreclosure Cases.  Nothing in this order shall be construed as preventing a judge from setting additional sales days under S.C. Code Ann. §15-39-680 (2005).  Further, where an order of foreclosure was issued on or before May 4, 2009, nothing in this order shall be construed as preventing the judge from directing the advertising of the property for sale so long as any issue regarding the HMP is resolved before the sale occurs.

For the purpose of this order, the term “judge” shall include a circuit court judge, master-in-equity and special referee.  If this order requires service of an affidavit or counter affidavit upon a party, service shall be accomplished as provided by Rule 5(b)(1), SCRCP, and service shall be made on all parties to the action.

 IT IS SO ORDERED.

s/Jean Hoefer Toal Jean H. Toal Chief Justice

Columbia, South Carolina
May 22, 2009

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[1] The guidelines are available at www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf.  In addition to contacting the servicer to determine if the loan is owned or guaranteed by Fannie Mae and Freddie Mac, homeowners can also use the links on the following website to determine if their loans are owned or guaranteed by Fannie Mae or Freddie Mac:  http://makinghomeaffordable.gov/loan_lookup.html.

[2] Available at www.hmpadmin.com/docs/Supplemental_Directive_09-01.pdf.

[3] A list of those servicers who have agreed to participate may be found at http://makinghomeaffordable.gov/contact_servicer.html. 

[4]   The Guidelines state:

Any foreclosure action will be temporarily suspended during the trial period, or while borrowers are considered for alternative foreclosure prevention options. In the event that the Home Affordable Modification or alternative foreclosure prevention options fail, the foreclosure action may be resumed.

In relevant part, the Supplemental Directive states:

To ensure that a borrower currently at risk of foreclosure has the opportunity to apply for the HMP, servicers should not proceed with a foreclosure sale until the borrower has been evaluated for the program and, if eligible, an offer to participate in the HMP has been made. Servicers must use reasonable efforts to contact borrowers facing foreclosure to determine their eligibility for the HMP, including in-person contacts at the servicer’s discretion. Servicers must not conduct foreclosure sales on loans previously referred to foreclosure or refer new loans to foreclosure during the 30-day period that the borrower has to submit documents evidencing an intent to accept the Trial Period Plan offer. Except as noted herein, any foreclosure sale will be suspended for the duration of the Trial Period Plan, including any period of time between the borrower’s execution of the Trial Period Plan and the Trial Period Plan effective date.  

[5] This order and the motion are available at www.sccourts.org/whatsnew/displaywhatsnew.cfm?indexID=526.

[6]  Rule 8(a), SCRCP.

[7]   For example, the complaint could simply state:  “Since this foreclosure action involves a mortgage on a commercial office building, the Home Affordable Modification Program is inapplicable.”

[8]  Despite the fact that the loan is owned, securitized or guaranteed by Fannie Mae or Freddie Mac, or the servicer is participating in the HMP, there are numerous other requirements that may prevent the loan from being eligible for modification under HMP.  For example, modification under HMP is not available if the property is not a single family 1 - 4 unit property, the property is not the primary residence of the homeowner, the mortgage originated after January 1, 2009, the unpaid principal balance exceeds certain specified amounts, the property is vacant or condemned, or the loan has been previously modified under the HMP.  For specifics on these and other requirements, the Guidelines and Supplemental Directive should be consulted.  For homeowners, there is an interactive website to assist them in determining if the mortgage loan is potentially subject to modification under the HMP:  http://makinghomeaffordable.gov/modification_eligibility.html.

[9]  If the HMP is applicable and the modification process has not been completed, the action should not be filed.

[10]   I am concerned that there may be a significant number of actions that may be stayed while the HMP process is completed.  I expect the party seeking foreclosure to complete the process and make a determination if the mortgage loan will be modified in a prompt and diligent manner.  If this is not done and the number of cases stayed reaches an unacceptable level, this order may be modified to allow for the dismissal of actions which are stayed and not resolved in a reasonable period of time.   

[11] In response to the TRO, six law firms (the Scott Law Firm, P.A.; Rogers, Townsend, Thomas, P.C.; the Finkel Law Firm, L.L.C.; Fleming & Whitt, P.A.; the Korn Law Firm, P.A.; and the Weston Adams Law Firm) have filed a motion seeking a state-wide scheduling order.  The South Carolina Department of Consumer Affairs, South Carolina Legal Services, the law firm of Harrison & Radeker, P.A., and the South Carolina Appleseed Legal Justice Center have filed returns to the motion.  In addition, the six law firms have filed a reply and an amended reply. These filings have been considered in issuing this order.

In its return, Consumer Affairs points out that, in addition to HMP, other parts of the MHAP may provide relief to homeowners.  This includes Fannie Mae and Freddie Mac allowing refinancing of mortgage loans that they own or that they placed in mortgage backed securities where homeowners are current on their loans, Short Sales/Deeds-in-Lieu Program and the Home Price Decline Protection Incentives.  While these programs are beyond the scope of this order, the following links provide information about those programs: www.freddiemac.com/sell/factsheets/relief_refi.html;  www.efanniemae.com/sf/mha/mharefi/pdf/refinancefaqs.pdf; http://makinghomeaffordable.gov/refinance_eligibility.html; www.treas.gov/press/releases/docs/05142009FactSheet-MakingHomesAffordable.pdf.