While the home price and mortgage crisis has been all the news since 2006, and foreclosures are the big news these days, there’s a new major news story that’s burst on the scene recently. Now five major banks have halted foreclosures in at least 23 states, one halting all foreclosures.
· Bank of America has stopped foreclosures in all 50 states.
· J.P. Morgan Chase has halted foreclosure actions in 23 states.
· GMAC Mortgage has done the same in 23 states.
· PNC Financial has also chosen to stop sales of foreclosed homes in 23 states.
· All of these lenders are putting out notices to real estate brokerages to remove some foreclosed homes from listed status temporarily.
First, what’s the significance of the 23 state number? These are states that require judicial review of foreclosures, meaning the courts are involved. This requires a higher burden of due diligence on the part of the lenders and banks in getting their paperwork together to take someone’s home. Or, at least that’s the plan.
In reality, a practice called “robo-signing” has been used by all of these lenders to move the foreclosure process along with the massive load of the last three years. Robo-signing, the assembly line signing of affidavits that swear to the existence & examination of documents proving the debt and amount in default, has been used on a large percentage of foreclosure actions. Some attorneys and employees of these lenders have stated they signed hundreds to thousands of these documents every week without ever examining the loan documents as the affidavits stated.
What does this mean for people losing their homes? It’s hard to say, as some analysts state that all that will happen is a delay of the invevitable while the documents are gathered and really examined to restart the process. Others believe that there may be many homes that could go back to their owners because the documents can’t even be located. Title companies are nervous because some buyers they’ve insured could be thrown out if the previous owners prevail in court actions to get their homes back.
What does this mean for investors? Extra care should be taken during this purging of problem procedures. You don’t want to have to give back a home you’ve purchased and rehabilitated. Get title insurance. If you can’t because of this crisis, then pass on the deal until you can.