Critics of judicial foreclosure processes decry the method as overly time consuming, even as supporters point out its effectiveness at keeping homeowners out of foreclosure.

Secretary of the Commonwealth William Galvin’s recent, controversial proposal to transition the Bay State from non-judicial foreclosures to a judicial system then begs the question – which side is right?

The answer, according to an examination of foreclosure data provided by The Warren Group, publisher of Banker & Tradesman, seems to be both.

Banker & Tradesman analyzed both foreclosure timelines and outcomes in the commonwealth and neighboring Connecticut, a judicial foreclosure state. It revealed that while foreclosures in Massachusetts move through the process faster, Connecticut has a better rate of non-foreclosure resolutions.

By The Numbers

In judicial states, like Connecticut, foreclosure lenders must prove their case in court. Borrowers then have an opportunity to mount a defense against the lender’s case.

In non-judicial states, the burden falls on the homeowner to prevent or delay a foreclosure by bringing the matter into court, and making a case for why the lender cannot proceed. Massachusetts essentially follows a non-judicial system, though it requires lenders to file an affidavit to comply with the federal Servicemember’s Relief Act.

According to The Warren Group, so far in 2010 the average completed foreclosure in Connecticut took 387 days to go from lis penden – the first step in Connecticut’s foreclosure process – to foreclosure deed, up from 275 days in 2006. In Massachusetts, it took 226 days in 2006 to go from foreclosure petition to deed, rising to 307 days in 2010 – still almost three months less than in Connecticut.

But Connecticut wins when the argument turns from efficiency to efficacy.

In 2009, the last full year for which data is available, the ratio was about one foreclosure deed issued for every three petitions filed in Massachusetts, compared to roughly one deed for every five lis pendens in Connecticut, The Warren Group data shows.

In either state, it’s clear the vast majority of initiated foreclosures don’t end with the bank taking the home, but rather with a cure, sale, short sale or a modification. Indeed, Connecticut’s somewhat lower ratio of deeds issued may in part be attributable to the separate and mandatory mediation program between borrowers and lenders that the state instituted in 2008.

‘A No-Brainer’

The longer wait to foreclose, and subsequent additional court proceedings, in judicial states undoubtedly leads to higher costs for lenders. But there are other considerations.

The nationwide robo-signing controversy of recent months first came to light in judicial foreclosure states because lenders must do more in those locales to prove their case. In numerous suits, it was uncovered that evidence lenders were submitting as verified had been improperly reviewed.

Compounding matters further in Massachusetts is the controversial Ibanez Land Court decision, in which a Western Massachusetts judge threw out foreclosure proceedings because the foreclosing lenders could not prove they owned title.

The need to maintain clear chain of title is what’s driving Galvin’s proposal.

“The absence of some sort of judicial review of foreclosures is opening the window… to questions of ownership of the note,” he said. “So I think there’s a broader interest here than simply giving the borrowers a chance to stand before the judge and make allegations, if they have any. It also settles the title and clarifies the title.”

Housing advocates say a transition will have other benefits. Bruce Marks, CEO of the Neighborhood Assistance Coalition of America, a Boston-based nonprofit providing counseling to distressed homeowners nationwide, said switching to judicial foreclosure is “a no-brainer.”

“In a judicial process, what you have is a forum to present the issues and to have them addressed,” Marks said. “So it’s not just the time, it’s a decision maker who would bring the parties together to try and avoid the foreclosure. That’s the key piece.”

Fears Of Flooding

But lender representatives told Banker & Tradesman that moving to a judicial system wouldn’t necessarily increase lenders’ willingness to make concessions. Potential non-foreclosure resolutions are driven far more by lenders’ own internal risk calculations, and not necessarily by a desire to save time and money on legal fees.

The Real Estate Bar Association has publicly stated its skepticism towards Galvin’s proposal, saying there are already ample opportunities to dispute or otherwise influence foreclosure proceedings.

Jonathan Anderson, senior title counsel for CATIC, a title insurer operating in both Massachusetts and Connecticut, said that being able to review court proceedings helps insurers “feel very secure that it’s good title.” But in non-judicial states, the title record still contains enough evidence to verify assignments and identify potential flaws, he said.

Two years ago, a similar proposal by Galvin failed because it didn’t specify new procedures or designate any funds to effect the change.

In a time of strained state and municipal budgets, it’s unlikely this version will be more generously funded. Lender advocates fear that without clear instructions for implementation, and more funds to beef up court staff, switching to judicial foreclosure could swamp dockets.

Massachusetts foreclosure petitions have risen 46 percent in the last four years – to just shy of 28,000 in 2009, from more than 19,000 in 2006. Through November of this year, 23,200 have been filed, although the recent robo-signing stir caused a significant slowdown as lenders re-evaluated their practices. It is anticipated that when lenders implement new practices, the pace will rocket up again.

But Galvin maintained that fears of flooding the courts are overblown.

“There is a process. I think it can be streamlined and accelerated,” he told Banker & Tradesman. “I’ve heard the argument, ‘oh, the poor courts.’ Well, frankly we have too many courts, and some of them don’t have enough to do… I think we have to go forward, and that’s why I’m offering this proposal.”