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Wilmington Savings Fund Society v. Johnson

Superior Court of Rhode Island, Providence

February 21, 2019

WILMINGTON SAVINGS FUND SOCIETY, FSB, D/B/A CHRISTIANA TRUST AS OWNER TRUSTEE OF THE RESIDENTIAL CREDIT OPPORTUNITIES TRUST V, Plaintiff,
v.
RANDALL T. JOHNSON, SANDRA L. JOHNSON, Defendants.

          For Plaintiff: Patricia A. Davis, Esq. Matthew C. Casey, Esq.

          DECISION

          LANPHEAR, J.

         This matter came on for hearing before Mr. Justice Lanphear on January 30, 2019, on the motion of plaintiff to foreclose a mortgage with judicial authorization. Defendants have been defaulted by the Clerk. The Court took this matter under advisement. At the hearing, only the plaintiff appeared; the defendants-homeowners have not responded to service of process.[1]

         Analysis

         A

         The Foreclosure Process

         There are essentially two methods of foreclosing a mortgage in Rhode Island. The most common method is to foreclose via the "statutory power of sale." Most mortgage notes and deeds contain language expressly set forth by G.L. 1956 §§ 34-11-12, et seq. which allows mortgagee-lenders to foreclose after notice and newspaper advertising, but without a court case. The other method is to foreclose pursuant to a court order.

         With the rise of modern homeownership and commercial financing in the twentieth century, the Rhode Island General Assembly moved to ease the complexities of mortgages. Section 34-11-22 allowed the lender to simply insert the words "statutory power of sale" on the mortgage deed, which automatically incorporated by reference a vast array of uniform terms to the document defining the process to foreclose. By incorporating these four words, the process of foreclosure, the frequency and the location of advertisements for the foreclosure, the requirement of the owner to pay taxes, assessments and insurance and the right to surplus funds were all incorporated by reference into the mortgage agreement. Given the ease of foreclosing without court litigation, judicial foreclosures became uncommon[2] and were, in practice, reserved for clearing titles with ancient mortgages which were never discharged, or other title issues. See Joseph A. Montalbano, Esq., Equity Actions: Clearing Clouds on Title (May 1998.) As Charles A. Lovell and Michael B. Mellion indicated in A Practical Guide to Residential Real Estate Transactions and Foreclosure in Rhode Island § 10.1.1, Methods of Foreclosure in Rhode Island (1st ed. 2012),

"Judicial process under R.I.G.L. § 34-27-1 is generally used only where there is a title defect that must be cured by the court. Foreclosure by entry and possession under R.I.G.L. § 34-23-3 is rarely used in Rhode Island. The final, and overwhelmingly preferred course of action, is foreclosure under the statutory power of sale, which is contained in R.I.G.L. § 34-11-22."

         The Rhode Island General Assembly, aware that non-judicial foreclosures had become the norm, kept watch on the process to ensure fairness to the consumer-homeowner. It increased the time for pre-foreclosure notice to the mortgagor-owner, prior to advertising (P.L. 2003, ch. 233, §§ 1-3), and required that credit counseling be offered to mortgagors-owners in 2009. Sec. 34-27-3.1(b).[3]

         Through the 1980s and 1990s, investing in residential home financing became more attractive in financial markets. Lending institutions began to bundle a large number of mortgages and sell them in bulk to private investors. With this growth, mortgages were often assigned and reassigned to various lenders and investors in large bundles. When foreclosures arose during cyclical changes in the economy, the mortgagors-owners questioned whether the foreclosing banks held the original notes or were true assignees of the mortgage. Mortgagee-lenders often struggled to locate the original promissory notes, mortgages and multiple assignments. See Mruk v. Mortg. Elec. Registration Sys., Inc., 82 A.3d 527, 537 (R.I. 2013); Bucci v. Lehman Bros. Bank, FSB, 68 A.3d 1069, 1084-85 (R.I. 2013). With the confusion, more litigation arose, perhaps to eliminate the risk that the statutory foreclosure was done by the incorrect assignee.[4] Over the past few years, the Court has seen a marked increase in the requests to foreclose by court order.

         B

         The Legislature's Desire for Mediation

         The United States District Court for the District of Rhode Island, suddenly burdened with over 500 cases by homeowners seeking to slow foreclosures, issued an order requiring mediation of its pending foreclosure-related cases in an effort to resolve and control the backlog. In re Mortgage Foreclosure Cases, Misc. No. 11-mc-88-M-LDA., 2012 WL 3011760 (D.R.I. July 23, 2012). Although the Circuit Court of Appeals construed this order to be an inappropriate preliminary injunction, Fryzel v. Mortg. Elec. Registration Sys., Inc., 719 F.3d 40 (1st Cir. 2013), the Rhode Island General Assembly had already mandated that mediations be conducted prior to mortgage foreclosures. Sec. 34-27-3.2(b).

         Section 34-27-3.2(d) now requires that a notice indicating the availability of mediation be sent by the mortgagee-creditor to the mortgagor-owner "prior to initiation of foreclosure." If the notice is not sent within 120 days after the date of default, the mortgagee-bank must pay a penalty of $1000 per month for each month of delay. Sec. 34-27-3.2(d)(1). While there were certain exceptions to the statute for bankruptcies, soldiers and sailors, and lenders who could establish their good faith, these exceptions apparently did not apply to all mortgages in default. This Court ...


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