UPDATE: As of 10/19/10, both Bank of America and Ally Financial have lifted their Foreclosure Freeze, saying that they didn’t find any significant problems with the foreclosure documents.
The Foreclosure Freeze is big news, not only locally, but nationwide. Two of the nation’s largest banks have stopped foreclosures in some states; Chase and PNC Financial. And, according to CBS Money Watch, Ally Financial and Bank of America have done so in 50 states.
What triggered this latest foreclosure development?
A sworn deposition in Pennsylvania by GMAC loan officer named Jeffery Stephan. In this deposition, Stephan admitted that he signed off on up to 10,000 foreclosure documents a month for five years.
If you do the math, that means that Mr. Stephan had approximately a minute and a half to make sure grounds for foreclosure actually existed. And Mr. Stephan admitted that he hadn’t reviewed the documents.
The banks that have stopped foreclosures say that they are checking to see if their employees made errors in the loan documents needed to complete foreclosures.
In some instances lenders cannot show that they have a legal right to foreclose on a home. Every time a mortgage changes hands, the new owners are supposed to receive an “assignment” of the mortgage notes from the buyers. This assignment is typically a short document, signed by both the buyer and seller of the mortgage, acknowledging the sale.
For most mortgages, this “assignment” note exists somewhere, but due to the fact that some of the original mortgage lenders have gone under or merged with another bank, tracking down these notes can sometimes be difficult–if not impossible.
Banks are also looking for faked notarizations and forged documents. Many documents appear to have been signed without a notary public witnessing that signature and that is a violation of law.
What does this foreclosure freeze mean for Real Estate Agents?
In talking to Realtors for Century 21 M&M about the Foreclosure Freeze, they have a ‘wait and see’ attitude. Roxanna Shatz of the Century 21 M&M Escalon office says, “So far the foreclosure freeze affects only Bank of America transactions in California. None of my sales have been affected and I don’t know of any other agents in the Century 21 M&M that have been affected.”
Roxanna attended a webinar on the subject this morning, and she states, “Bank of America seems to be confident that the process of reviewing their foreclosure documents should only take a couple more weeks.”
In general, contracts to buy bank owned foreclosed homes have been put on hold and extended for 30 days. And, in some cases, banks are reaching out to buyers and offering them the option to cancel their contracts and recoup their deposit.
Santiago Salcido, Realtor for Century 21 M&M Real Estate Modesto, also states that none of the transactions that he has been working on have been affected. However, he is careful to say, “You just don’t know, this crisis is still in the early stages.”
This is a win-win situation for both buyers and sellers of short-sales:
- A short sale would be safer to a buyer because he knows the person he is buying from is the true owner.
- Sellers will not suffer the same financial and credit damage set backs from a short-sale that they will suffer from a foreclosure.
Roxanna says, “The thing that really concerns me is the fact that the California Attorney General, Jerry Brown wants to put a halt to all foreclosures.” Actually, in all 50 states, the attorneys general are reviewing whether mortgage companies have violated their states’ laws.
In the short term, the foreclosure freeze may cause home prices to stabilize, however, if this freeze goes on for a long time, the result may mean more foreclosures…which could delay the recovery of the housing market and home prices for some time.
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