Foreclosures Freeze Across the Nation…Or Are They?
October 14, 2010 (San Jose, CA) - I’m sure that almost everyone by now has heard that a number of major banks have decided to freeze, or temporarily stop all active foreclosures in select states across the US. But the message is still unclear about how this latest foreclosure fiasco might impact homeowners in California.
So far the recent halting of foreclosures is just a voluntary action by these lenders and has not yet been mandated by either the states or the federal government. This action comes as a response to findings that questioned whether lenders have followed correct foreclosure procedures in the 23 states that require a judicial foreclosure process, or court confirmation prior to foreclosure. Findings have revealed that there may have been fraudulent paperwork filed, or media dubbed “robo-signed” documents, by these banks during the foreclosure process.
In reaction to these highly publicized findings, last week Federal agencies, including the Office of the Comptroller of the Currency, the Federal Housing Administration, and the conservator of Fannie Mae and Freddie Mac, asked lenders and servicers to postpone their active foreclosures while they review their foreclosure processes in all states, not just the ones directly affected. Following their request, only JP Morgan Chase, GMAC and Bank of America have decided to temporarily suspend their foreclosure process while they internally audit their files. But other banks such as PNC Mortgage and Wells Fargo have yet to stop any of their foreclosure activity although they are internally reviewing their foreclosure process.
While the banks claim that these recent problems with their foreclosure documents are merely technical and that homeowners in default will continue to be foreclosed upon, teams of lawyers representing the homeowners are trying to claim that filing any flawed foreclosure documents with the court is fraud. If it is ultimately determined that some of these foreclosures were in fact wrongful due to the inaccuracy of any court filed documents, then some previous buyers of foreclosed homes in the 23 states affected could face title claims by the previous owners who may have been wrongfully evicted.
In CA, the foreclosure process is dominated by non-judicial procedures (also known as Trustee's Sales) but there are still legal requirements that must be met by these lenders before they have the right to foreclose. Which is why, due to the recent publicized findings, the attorney's general offices in all 50 states are simultaneously launching an investigations into whether or not these corner-cutting banks have in fact broken the law as they pushed countless delinquent homeowners from their homes. But so far, only Bank of America has temporarily suspended its foreclosures in CA, while all other lenders are continuing their foreclosures.
Nonetheless, REALTORS in CA have already begun to report the immediate impact of even one bank's moratorium on foreclosures. We are seeing delays in escrows in transactions that involve properties that have been foreclosed by Bank of America, as well as the total removal of their listed foreclosures from the housing market. And due to these temporary actions by Bank of America, Buyers are extremely cautious about making offers on any bank owned listings, no matter which bank owns the property.
But REALTORS in CA remain optimistic that this recent media storm will be short-lived since there isn’t any indication yet whether other lenders will follow suit, and for the moment it seems safe to assume that this one bank is merely reacting in a knee-jerk manner. This also means that all other CA homeowners will probably not see any direct affect from the “foreclosure freeze” other than it creating an additional speed bump in an already prolonged recovery. Assuming that Bank of America’s moratorium will be lifted in the next month, the flow of REOs to the market should resume, but the uncertainty created by their moratorium has already caused hesitation on the part of homebuyers.
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Bradley Gill, REALTOR, CDPE, SFR
There are many resources available to distressed homeowners in San Jose, CA as well as the greater Santa Clara County area including local real estate professionals who have been trained to assist distressed homeowners review their foreclosure alternatives.