Switching Foreclosure Rules in the Middle of the Game

Yves Smith has an interesting post up on Naked Capitalism about Florida Governor Rick Scott suggesting that Florida could switch from judicial to nonjudicial foreclosures as a way to solve its foreclosure overload. (At a Congressional hearing last fall, the head of BAC testified that 70% of judicial foreclosures are in Florida, a testament to that state's high default rate and large population among judicial foreclosure states.)  

Putting aside the political questions of whether should engage in such a change and whether the votes are there, I think there's a really interesting legal question lurking in the suggestion. Can a state change from judicial to nonjudicial foreclosure as applied to existing mortgages? (Let's assume that it would only apply to future foreclosures, however.) 

The question has some parallels in retroactive application of changes in the bankruptcy law to the detriment of secured creditors (generally a no-no, but Supreme Court cases leave open the possibility of a public interest exception to retroactivity).  I would think that the same analysis would apply to state foreclosure law changes as to bankruptcy law, namely, whether the change has deprived a party of a property right.  In the case of foreclosure law, the answer is clearly yes.  

There is monetizable value to procedural rights in foreclosure. Economist Karen Pence has a great study showing that mortgage availability is lower (meaning mortgages cost more) in judicial foreclosure jurisdictions. In other words, those homeowners are buying procedural protection (think of it as a type of insurance). Changing the game on homeowners, beyond smacking of unfairness, would actually be depriving them of fairly-bargained for value. It would also unjustly enriching lenders, not just in the way that Yves identifies--namely that they won't undergo judicial scrutiny of their cases--but that they will get paid premium judicial foreclosure rates for non-premium nonjudicial foreclosure law. I think that in such circumstances, homeowners (and not just those in default, but everyone currently with a mortgage in Florida) arguably have a case (possibly a class case) that such a change is taking their property without just compensation. Whether that produces an injunction or just damages is a separate question, but I don't think Florida can change the rules of foreclosure midstream free of cost.