Unsynchronized Mortgage Laws are a Hurdle to Housing Recovery

By Sari R. Updated on 11/27/2012

The fact that mortgage laws vary so much in different states is creating a complicated predicament that is ultimately stalling a full housing recovery.  A new academic study from Arizona State University implies that states with short foreclosure processes have successfully moved out of the housing crisis.  However, states with long foreclosure processes that often experience delays have not yet recovered from the economic downturn. 

Some states use the non-judicial foreclosure procedure while other states use the judicial foreclosure process, which requires court approval.  Other states may not require a judicial foreclosure process, but require a great amount of paperwork (including a promissory note). 

The fact that the states have conflicting mortgage laws isn’t a new issue.  On a state level, there is a huge divide between nonjudicial and judicial states.  When a system is undergoing stress, weaknesses and stress points of that particular system are highlighted.  This tends to result in foreclosures taking a longer amount of time in judicial foreclosure states.  Non-judicial foreclosure states have a more streamlined process.

Non-judicial foreclosure states such as Arizona have already passed through their foreclosure backlog and are in a housing market recovery.  Cities such as Phoenix have dramatically increased home prices and have showed significant signs of housing improvement. 

States such as Florida and New York are still having slow foreclosures.  In extreme cases, properties have been known to stay for up to two years.  This leaves property values distressed. 

Analysts think that now would be a good time to consider a national foreclosure law adjustment.  This would simplify and streamline the mortgage process for everyone, as lenders and officials wouldn’t be dealing with fifty different state laws and sets of paperwork.  This would save money, resources and time.  There isn’t any reason for the different laws; many of the laws date back to the 1800s and some were changed since the Great Depression.

Professors at Arizona State University think that the battle to streamline mortgage laws and legislature will be more challenging than people originally thought since federal and state law will be battling head-to-head.  The study indicated that the most preferred solution would be a system that took into account the interests of all the states as well as trying to streamline the process.  Professors believe that even though this process is well-needed and wanted, it wouldn’t be implemented for a few years if all these efforts did come to fruition.

For today's lowest mortgage rates, please click here.