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Foreclosure mess can affect anyone: sellers, buyers, even
homeowners who aren't delinquent
October 15, 2010 - WASHINGTON — You've probably seen the headlines about the
fast-spreading foreclosure mess — moratoriums on home sales, calls for
congressional investigations, and state and federal litigation in the wings.
But what could all this mean to you as a homeowner, buyer or seller? Potentially
more than you might assume. It all depends on the specifics of your situation.
You might not be delinquent on your mortgage. But the bank-owned house down the
street that hasn't yet gone to foreclosure sale — the one that's been vacant and in
poor maintenance for months — now may not be resold for an extended period. And
how does that affect you? Without new owners who would make needed repairs and
capital improvements, the house becomes a long-term eyesore and could negatively
affect neighborhood property values.
In fact, it's possible the evicted former owners are now hiring a defense attorney to
look through documents for evidence of irregularities in processing by the bank that
could throw the entire foreclosure into question and stall any resale for additional
months.
"The phones are ringing off the hook," says Ronald Scott Kaniuk, a foreclosure and
bankruptcy law specialist in Boca Raton. "People know that the banks haven't been
playing fair" on foreclosures and have cut corners through mass "robo-signings" of
documents rather than proper reviews, he said. The coming tidal wave of private and
public litigation against banks could stall foreclosures indefinitely, Kaniuk thinks.
The sheer numbers of houses and families potentially affected are huge. According
to data researcher RealtyTrac, lenders filed for foreclosure on approximately
339,000 homes nationwide in August alone. The same month, banks took back about
95,000 homes for eventual resale. Roughly 5 million households are somewhere in
the foreclosure process, according to industry estimates — they've received notices
of default and are on the conveyor belt to foreclosure and eviction. Even without
mass litigation gumming up past and future foreclosures, the process often is not a
speedy one.
Based on conversations with legal, banking and real estate experts, here are some of
the potential scenarios and issues emerging from the national foreclosure mess. Say
you fit into one of these categories:
Recent buyer of a foreclosed home. There's a chance that the bank's foreclosure
processing could be found to have been improper or that the bank did not adequately
document its legal title to the house. What does this mean for you? The first
question to ask is: Did I take out title insurance that protects me? If you financed
the purchase, it's virtually certain the mortgage company required at least a
lender's policy that covers title issues affecting its collateral. The title insurance
underwriter will go to court, if necessary, to defend the lender's interest and
compensate it for any legitimate losses. But if you did not take out an owner's
policy, or bought for all cash, you could find yourself defending your investment on
your own.
Financially distressed homeowner who recently received notice of a foreclosure
filing from the bank. What to do? Peter J. Henning, a professor at Wayne State
University Law School, says now more than ever it is crucial to ask an attorney to
review all documents you receive. Henning says that banks have been sloppy in
their high-volume processing of foreclosures. "They often seem to have sort of a
'good enough for government work' approach," he said, "because they assumed
nobody was watching." The foreclosure crisis, which Henning calls "hydra-headed"
in its wide-ranging impacts, should force banks to be more careful in future
foreclosures, he said.
Homeowner behind on payments, but who has not yet received a foreclosure notice.
According to Ira Rheingold, executive director of the National Association of
Consumer Advocates, which provides support to foreclosure legal assistance
programs, this may be a propitious time to demand a loan modification — even a
substantial principal reduction — from your loan servicer. The nationwide
foreclosure mess "might shake up the banks enough to convince them to finally
become real partners" in devising workable solutions for distressed borrowers —
"forcing them to deal with the reality they've created."
For their part, some of the country's largest banks insist that their foreclosures
have been proper, and that foreclosed borrowers typically are severely delinquent.
Bank of America says that its average customer who goes to foreclosure has not
made mortgage payments for 18 months.