Lenders Beginning To Steer Foreclosure Actions Away From Clogged State Courts & Into Faster-Moving Federal Courts?

Are attorneys for lenders beinning to navigate their foreclosure cases away from slow-moving state courts that are flooded with these lawsuits, and deciding to flood the federal courts instead (ie. enjoy unclogged dockets, dodge foreclosure mediation requirements imposed by state judiciary, make it tougher for homeowners to find a foreclosure defense attorney admitted to practice in, and familiar with, the local federal court)?

Maybe so, at least according to the following footnote buried in a recent U.S. Circuit Court of Appeals ruling involving another screw-up by a foreclosing 1st mortgage lender, and dealing with the application of the state law of Pennsylvania:(1)

• Even prior to the financial crisis of 2008, mortgage foreclosures in federal courts were not unheard of. See, e.g., Land Holdings (St. Thomas) Ltd. v. Mega Holdings, Inc., 283 F.3d 616, 620 (3d Cir. 2002); Citicorp Real Estate, Inc. v. Smith, 155 F.3d 1097 (9th Cir. 1998); In re Foreclosure Cases, 521 F. Supp. 2d 650 (S.D. Ohio 2007); Ryder v. Wash. Mut. Bank, 501 F. Supp. 2d 311 (D. Conn. 2007); Mellon Bank v. Pasqualis-Politi, 800 F. Supp. 1297 (W.D. Pa. 1992).
  
  Today they are much more common due to congested state court dockets. Indeed, counsel for NCM informed us at oral argument that NCM brought the foreclosure in federal court because sheriff's sales in Monroe County were backlogged by approximately 18 months, whereas federal marshal's sales were typically held within four months of obtaining a foreclosure judgment.

For the footnote, see National City Mortgage Company v. Stephen, No. 09-1731 (3d Cir. July 22, 2011) (footnote 2).

(1) The issue in the case itself involved the following mess created by the foreclosing 1st mortgagee and its foreclosure mill law firm:

• A foreclosing 1st mortgage lender failed to serve notice on a junior lienholder of the foreclosure sale.



• The negligent foreclosing lender subsequently foreclosed and took title to the property.



• The junior lienholder then claimed that the consequence of the foreclosing lender's failure to notify it of the sale results in the junior lien's survival after the sale (ie. the junior lien does not get wiped out by foreclosure of the superior lienholder's interest), thereby allowing it to move up the ladder of lien priority, and leaving the foreclosing lender with a property subject to the junior lien.



• The negligent 1st mortgage lender tried to fix the error by trying to set aside the sale, and ask for a second chance in serving the foreclosure notice to the junior lienholder.



• The federal judge refused to rule on what to do, saying that the parties have to go to state court and ask it to figure out the answer.



• The federal appeals court said no, saying that, since the foreclosure action was already litigated before the federal trial judge, it can't now punt on figuring out what to do.

The case contains a discussion of some of the Pennsylvania cases that may be applicable to this fact pattern, as well as some federal case law involving the procedure issue that caused the appeals court to remand the case back to the lower court.