The Supreme Court of South Carolina on Tuesday ordered lenders not to proceed with foreclosures in the state until they can demonstrate that they have given troubled homeowners a meaningful opportunity to modify their loans.
Chief Justice Jean H. Toal, who issued the order, said in an interview that the action stems from frustration with lenders that are regularly negotiating loan modifications with borrowers while simultaneously pressing ahead to foreclose on those borrowers.
This so-called “dual track” process has created “a grand mess” in the court system, Toal said. Judges in the state say that foreclosure attorneys who appear before them are often unaware that the borrowers they are trying to evict are negotiating loan modifications, and the confusion creates unnecessary delays and burdens for the court, Toal said.
The dual track process has surfaced as a key problem across the nation, and several large lenders say they are working to eliminate the practice. In South Carolina, many judges attributed the problem to a breakdown in communication between lenders and the attorneys they hire to represent them in foreclosure cases, Toal said.
“It occurred to me that you’ve got to make the lenders have some sort of interaction with their own attorneys,” she said. “The attorneys are the ones that need to step in and be involved in the matter, and the lender has to empower them.”
To that end, the court order requires foreclosure attorneys to certify that a troubled borrower was given an opportunity to modify his or her loan. This applies to foreclosure actions pending on or after May 9.
If a loan modification is denied, the borrower must be informed in writing and given a chance to respond, the court order says.
Lenders and their lawyers can be sanctioned for not complying with the order.
Consumer advocates said similar systems are in place in New York and Connecticut.
Ira Rheingold, executive director of the National Association of Consumer Advocates, said he expects the order to cut back on foreclosures in the state.
“The order puts the onus on the lender’s attorney,” Rheingold said. “What [the chief justice] has seen is a broken system where the attorneys don’t even talk to their clients. Foreclosures will in fact stop because no attorneys can certify the things that the court is asking them to certify.”
The South Carolina Supreme Court had issued a similar order in May 2009, but it applied only to loans eligible for the federal government’s key foreclosure prevention program.