Maine may reconsider foreclosure rule that shields borrowers

The possibility that Maine could remove a consumer protection against continued foreclosure litigation after a borrower has won could give servicers expanded options similar to other jurisdictions, experts say.

The catalyst for the potential change is J.P. Morgan v. Moultain, a case in which the court system previously found a lack of evidence related to the mortgage company's ownership of the loan and the amount owed, according to the Portland Press Herald. The latest escalation of that lawsuit asks for reconsideration of both a precedent restricting subsequent litigation, and a related case that set it, The Maine Monitor reported. 

Both local news outlets noted that Thomas Cox, high-profile consumer attorney who called attention to widespread foreclosure process improprieties following the Great Recession, is opposing a change to the precedent, saying it could hurt borrowers as they come under increasing financial pressure from inflation and higher rates.

Other legal experts agree that a change would be a setback for consumers.

"Unfortunately for homeowners, most states do not have such protections," said Troy Doucet, a principal and attorney at law at Doucet Gerling, who called Maine's precedent "highly unusual, as well as highly beneficial for homeowners."

A ruling in favor of dismissing the precedent would bring Maine's laws in line with the status quo, to the degree one exists in a patchwork of state foreclosure laws. Some jurisdictions like Florida allow considerable latitude in subsequent actions while others, like Kentucky, set clear boundaries on when they can occur, said Jason Vanslette, real estate partner at Kelley Kronenberg Law, in an email.

"It would not be unusual if the Maine Supreme Court took a more 'bank-friendly' interpretation," Vanslette said.

Given that, to date, foreclosure activity has remained low, home equity levels are high, and there have been operational improvements in record-keeping and compliance, borrowers with newer mortgages may not be as much at risk today as more seasoned loans as a result of a change in this rule. But experts caution that limits to technological advances in servicing still leave borrowers exposed to some risks that their loan might not be processed correctly.

"I imagine there are lingering issues around the old books of business, and though e-vault and digital is where the market is going, [the servicing process] is remarkably paper-laden to this day – with delayed adoption. So I imagine there is still a challenge in this area," said Faith Schwartz, president at industry consultancy Housing Finance Strategies, in an email.