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Mortgage Foreclosure Processing Issue

Frequently Asked Questions (FAQ’s)

It's estimated that there will be around one million foreclosures this year.  In 2005, there were an estimated 100,000.  Here are some answers to frequently-asked question about foreclosures in the news late in 2010.

Q:    What was the current foreclosure issue?
    In late September and early October, 2010, several of the nation’s largest mortgage lenders suspended foreclosures in 23 states (including Indiana) due to questions about whether foreclosures were being processed consistent with applicable state law requirements.  That number has recently been expanded beyond the original 23 states. 

Concerns were being raised by state and federal officials, as well as consumer groups about the validity of ownership of mortgages that have been securitized and resold.  At the center of the controversy is Mortgage Electronic Registration Systems (MERS).  This firm is responsible for electronically tracking the transfer of assignment of mortgages.

Q:    Which mortgage lenders are involved?
    As of October 12, 2010, six of the nation’s largest mortgage lenders began investigating irregularities in their foreclosure process. Here’s a brief update on the announced positions of some lenders involved:

  • Bank of America – The nation’s largest servicer has halted foreclosure sales in all 50 states. The bank said the foreclosure process will continue, but will not proceed to judgment or a foreclosure sale until a full review has been completed.  Current pending sales are suspended until the review is completed.
  • JP Morgan Chase –The bank is reviewing 56,000 foreclosure cases in 23 states that require a judge to sign off on a foreclosure, and is reviewing documents in additional states. Current pending sales are also believed to be suspended.
  • PNC Financial Services - The company has halted selected foreclosure proceedings while it conducts a review of documents.  It is our understanding PNC has halted the sale of its REO as well.
  • Litton (Goldman Sachs subsidiary)-The subsidiary has suspended foreclosure proceedings in certain cases (those in the 23 judicial states) while it completes a review of its procedures.  It is unclear if their pending sales of foreclosures have been halted.
  • Ally Bank (formerly GMAC)-The lender previously announced that it was temporarily suspending evictions and post-foreclosure closings in judicial states, and has hired independent contractors to conduct a review of processes in all 50 states.
  • Wells Fargo Home Mortgage-The bank is conducting additional review of documents, but is not freezing foreclosures or suspending sales as of this date.
  • Freddie Mac – We understand that Freddie Mac has also suspended some, but not all of its sales of REO inventory until the reviews are completed. We have received no published confirmation of this action.
  • MetLife Inc – has announced it too has postponed foreclosure sales in “some states” (probably the 23 judicial states).

REMEMBER: This is a fluid situation and the stated positions of mortgage lenders is subject to change daily.

Q:    What is “REO”?
    “REO” stands for “real estate owned” and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no higher offer than the bank’s minimum bid (usually the (amount of the outstanding mortgage balance due).

Q:    What is a foreclosure sale?
    After a severely delinquent customer goes through the foreclosure proceedings, their home becomes property of the mortgagee. At that time, the home is sold at public auction. It is only after that time that a customer may be evicted from their home.

Q:    Are current REO listings being pulled from the market?
    Yes, some are.  Many of the largest mortgage lenders have announced they are suspending foreclosures and the marketing (listing) of foreclosed properties until their processes are reviewed and the properties cleared for sale.

Q:    Are current REO pending sales being stopped?
A:    Yes.  Many lenders (see above) are even halting the pending sales of their REO until the question of proper process can be answered.  In most cases, they have offered the buyers the opportunity to wait or cancel the sale.

Q:    How long will foreclosure sales be stopped?
    It is anticipated mortgage lenders will halt foreclosure sales until their assessment of their foreclosure procedures have been reviewed and any corrective actions taken.  When assured their foreclosure procedures are in order, it is anticipated the process of rescheduling foreclosures sales will be resumed.  The time-frame for this is unclear. Last week, one lender reported they were confident they would be ready to resume foreclosures and sales by November 1st, which we believe is highly unlikely.

Q:    Why are mortgage lenders taking this action?
    Due to questions raised about the foreclosure affidavit signing process, many lenders are taking these steps as a precaution as they review their process for handling foreclosure documents; specifically a foreclosure affidavit.  There is also a question of the actual ownership of the mortgages and MERS ability to act on behalf of the “fractured” mortgagees in the foreclosure process.

Q:    What is a foreclosure affidavit?
    A foreclosure affidavit is a legal document filed with the Court that provides a summary of information about the foreclosure, the property and the amount that is owed on the note. In 23 states where the Courts have jurisdiction over foreclosures, an affidavit of indebtedness must be submitted before proceeding with the foreclosure.

Q:    What should buyers of these properties do?
    Follow the instructions of the REO seller.  Some have instructed that real estate firms remove properties from the market until the foreclosure process issues have been satisfied.

For REO buyer clients with pended sales, work with your REALTOR to make an effort to determine if the bank/seller is in fact suspending the sale.  You will want something in-writing from the lender.  Your REALTOR can outline your options.  In many cases, buyers might wait until the subject property is reviewed and cleared for closing. For those buyers unwilling to wait, your REALTOR will execute a Mutual Release and request the return of your earnest money.

If you have already closed on the purchase of a REO, the assumption is that listed REO comes with clear title.  If you have any questions or concerns about the property, discuss the issue with your attorney.

Q:    Attorneys General in all 50 states have publically declared they intend to launch investigations into these irregularities.  What’s that about?
A:    Property foreclosure and the legal process involved in foreclosure is regulated by state law, not federal.  It falls to state authorities to investigate and determine if any laws have been violated.

We'll update this list of foreclosure questions and answers as we learn more about the foreclosure debacle.

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