Foreclosures: latest crisis impacting you?

October 19th, 2010

In the past two weeks the housing markets across the country have changed dramatically. Recent discovery of serious flaws in the foreclosure process of major lenders has halted foreclosures across the country. So what, you already own your home or are looking to buy a new home. Using mortgage calculators to determine your purchasing power for a new home loan, cash you will need to close or savings from a refinance, you feel immune to the growing tempest regarding foreclosures.

Ownership impacted

Does the owner who has been foreclosed upon have legal standing to reclaim the home if the foreclosure process was illegal? This is the basic question as the latest crisis in residential real estate evolves.

In response to the immense volume of foreclosures the past two-plus years, it was revealed that lenders have routinely been cutting corners on processing of foreclosure documents, they have not been reviewing the foreclosure documents before “robo-signing” and they often do not have the original deed and note. This disclosure has created serious ownership issues for those who have purchased foreclosed homes. All fifty state Attorneys General have joined in a massive investigation to determine if lenders participated in fraudulent foreclosure processes. The results of such an investigation could create serious ownership questions if homeowners discover their home was illegally or improperly seized by their lender.

Refinancing?

Using the refinance calculator you discover that you can save five, ten, maybe even twenty percent on your current monthly mortgage payment. If you purchased your home from a lender who foreclosed, however, are you sure you have the right to refinance the property? What if the lender obtained the property through fraudulent means and the prior homeowner sues to get his home back?

Will your title policy protect you? This is a subject for an attorney, if you purchased your home from a lender who foreclosed on a property, you may want to consult an attorney as to your ownership rights and the consequences of the scenario above.

Purchasing?

There is a great bargain around the corner that you are considering purchasing. It is owned by a bank who took it over after foreclosing on the prior owner for lack of payments. You have used the prequalification calculator and determined you qualify to purchase the home. Should you?

Prior to closing on the transaction check with your title insurance company as to your protection should the prior owner make a claim that the foreclosure process was illegal and as such would like his home back. Are you protected if you purchase the home?

Effects of a moratorium

Because of the unknown answer to these ownership questions, major lenders have put a moratorium on all foreclosures they have in process. The lenders are investigating these foreclosures to determine if they are being conducted legally under local state and federal laws. In many cases it is probable that the foreclosure process will need to begin anew. As this happens with more and more properties, banks will find themselves with such a growing number of loans in default that they will be slower in acquiring the properties through foreclosure and then putting them on the market. The result could be another wave of foreclosures hitting the market in 2011.

Millions of homes across the country have been foreclosed upon since the beginning of the housing and mortgage crisis in 2007. The latest revelations put the ownership status of many of those homes into question. Reaction to the “robo-signing” scandal has been to stop foreclosure proceeds, immediately creating a backlog of default properties that need investigating prior to bank repossession. This impacts supply on the housing markets, today and in the future which can impact home values.

Not affected by the most recent real estate crisis because you already own your home or are just starting to purchase a new home? Think again: what affects one part of the market affects all parts of the market.

Do your homework, communicate with your mortgage and real estate professionals, use your mortgage calculators and check with your title company.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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