D.C. foreclosure moratorium surprises title industry

Last week, the DC City Council enacted “Saving DC Homes from Foreclosure Emergency Amendment Act of 2010” (the “Act”). The Act will be effective for 90 days but may be extended by permanent legislation.

The Act was a surprise to the title insurance industry, as there was no advance notice provided by the Council prior to its enactment. As a result, the title insurance industry is attempting to digest the new requirements and provide guidance to its respective title agents.

The most concerning aspect of the Act as seen by the title insurance industry is that even strict compliance with the Act does not guarantee that the foreclosure sale is properly conducted in other particulars.

As such, purchasers of foreclosed properties may experience serious delays in closings or, at worst, may not proceed at all since title may not be insurable.

In effect, the Act operates as a moratorium on foreclosures of owner-occupied residential property. Of course the Act is intended to protect DC homeowners as it imposes a rigorous compliance standard for owner-occupied residential property foreclosures.

In short, the Act enhances the existing law by requiring lenders to send a notice of default to homeowners prior to sending the foreclosure notice, and by requiring notice of the right to mediation between lenders and homeowners before a foreclosure sale is commenced.

Additionally, the Act requires lenders to obtain and record a Mediation Certificate, to demonstrate compliance with the mediation provisions of the Act, prior to initiating a foreclosure of owner-occupied residential property. A pending foreclosure of owner-occupied residential property commenced prior to the time the Act became effective will not be in compliance with the Act, and under the provisions of the Act, will be void.

Foreclosure sales which are completed prior to the effective date of the Act should not be subject to the provisions of the Act.