Connecticut Law Review

Summer, 1992

Symposium

The Uniform Land Security Interest Act

ULSIA'S REMEDIES ON DEFAULT--WORTH THE EFFORT?

Roger Bernhardt

INTRODUCTION

The question of what remedies should be available to a mortgagee [FN1] upon default of the mortgagor makes mortgage law unique, difficult, and important. If all mortgagors paid their debts or if all mortgagees were free to take any action their documents permitted, there would be neither a foreclosure process nor any restrictions placed upon it by courts or legislatures. Mortgage documents would be less than a page long, freedom of contract would prevail, and society would have little need for mortgage lawyers.

Mortgage law, however, is complicated by the competing interests of mortgagees, one the one hand, who want their documents to provide effective relief in cases of default, and judges and legislators, on the other hand, who do not want mortgagees strictly enforcing their contracted-for*1004 rights after their mortgagors have defaulted. Most of the substantive law of mortgages thus consists of rules restricting the remedies that mortgagees have written for themselves in their mortgages.

It is therefore hardly surprising that the motivation behind the Uniform Land Security Interest Act (ULSIA or Act) is the improvement of the collection process in cases of default; indeed, most of the text and commentary of the Act deals with that topic. [FN2] The Uniform Law Commissioners' Introduction makes a token bow to other advantages of uniformity, but gets to the real point when it complains that “delays in completing real estate foreclosures . . . have increased the risks of vandalism, fire loss, depreciation, damages and waste . . . [and] plainly raised the cost of private mortgages, and have significantly eroded the economic value of many government subsidy programs involving real estate mortgages.” [FN3] To correct these shortcomings, the Commissioners believe that “the availability of a uniform, less expensive, and more expeditious foreclosure procedure would ameliorate these conditions and would facilitate the sale and resale of secured real estate loans.” [FN4] What ULSIA is all about is an improved foreclosure process; states considering its enactment should judge it in this context.

The arsenal of protections that the judiciary and legislatures have developed to protect mortgagors in distress has plainly irritated the lending industry. Starting five hundred years ago, from the Chancellor's original refusal to let a mortgage deed operate according to its terms by giving the mortgagee a fee simple absolute automatically and immediately upon default, and running through the equity of redemption, the delays of foreclosure, the replacement of strict foreclosure by sale foreclosure, post-sale redemption, deficiency judgment limitations and moratoria, up to mandatory restructuring today, a mortgagee generally dreads enforcing its remedies on default. The prospect of taking the pound of flesh without shedding a drop of blood is too risky. Because these impediments are treated as “superior equities” of the mortgagor,*1005 they can rarely be waived by improved language in the documents; indeed, nonwaivability of protection [FN5] becomes the main protective rule in mortgage transactions. Betterment, therefore, must come not from forcing mortgagors to agree to more onerous terms, but from appealing to the rulemakers to soften the rules.

This Act is one such appeal. There may be some perceived advantages to uniformity, but the real motive behind ULSIA is to quicken and cheapen the foreclosure process. [FN6] Special protections are granted to one class of borrowers--“protected parties” [FN7]--but in return the entire collection process is intended to be simpler, faster, cheaper, and more effective in all other respects. Speedy power-of-sale foreclosure is to replace inefficient judicial foreclosure, and self-help mortgagee in possession status is to replace judicial receivership to capture rental income from the property prior to foreclosure. In return for giving protected parties expanded redemption rights and extensive immunity from deficiency liability, other mortgagors will have fewer cushions after default than many jurisdictions now provide. This is the trade-off offered by ULSIA.

Overall, the strategy has had some success. ULSIA has the blessings of the American College of Real Estate Lawyers [FN8] and the Real Property Section of the American Bar Association. [FN9] However, though it was first promulgated in 1985, the Act has not yet been adopted in any jurisdiction, nor has it received much consideration in the law reviews or trade journals. [FN10] As a result, state legislatures do not have much *1006 existing analysis to aid them.

This Article attempts to serve that critical function. I approached ULSIA from the point of view of a mortgagee confronted with a default by its mortgagor who intended to collect its debt by complying with ULSIA. I proceeded mentally through the steps the lender would have to take at each stage of the process, noting where the Act gave clear guidance to the parties and where its message was silent, unclear, ambiguous, or contradictory. [FN11] Overall, I found that ULSIA did not present an easy road map to follow.***