Generally, states have had a hands-off policy when it comes to the interplay between federal and state law in the area of foreclosure. However, certain states are now saying no to national banks that try to sidestep state law when conducting nonjudicial foreclosures.
The Utah Lawsuit
In a recent case, Federal National Mortgage Association v. Sundquist, the Utah Supreme Court ruled that a national bank (ReconTrust, which is a wholly-owned subsidiary of Bank of America) did not have the authority to conduct foreclosures in the state because it did not meet the qualifications of a foreclosure trustee under Utah law.
Utah law says that only Utah attorneys and title companies may act as foreclosure trustees. Even though it did not qualify as either of these, ReconTrust conducted foreclosures in Utah anyway. It said that it could do so because it was a national bank and the National Banking Act preempted state law.
The Utah Supreme Court disagreed and stated that federal law does not preempt the relevant Utah statutes. The result? ReconTrust cannot act as a foreclosure trustee in the state.
Learn more in Nolo’s article National Bank Cannot Conduct Nonjudicial Foreclosures in Utah.
The Attorney General Lawsuit in Washington
In 2012, the Washington State Attorney General sued ReconTrust for failing to meet the obligations of a foreclosure trustee under the state’s Deed of Trust Act. ReconTrust settled the case and has since ceased operating as a foreclosure trustee in the state of Washington.
Learn more in Nolo’s article National Bank Cannot Conduct Nonjudicial Foreclosures in Washington.
Will More States Follow Utah and Washington’s Example?
Utah and Washington are not the only states that impose certain requirements and restrictions on foreclosure trustees. Many other states have similar rules. Given the results in Washington and Utah and, it’s likely that more states will challenge national banks who conduct foreclosures when they haven’t met state criteria to do so.
What Does This Mean for You?
What does this mean for you? If you are in foreclosure and the foreclosing trustee has not complied with state law, you may be able to delay the sale of your home.
Learn more in Nolo’s article State Law Determines Who Can Conduct Nonjudicial Foreclosure.
by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon