Foreclosures Wreak Havoc on Pending Home Sales in Much of the Housing Market

We’ve all heard of the foreclosure crisis in recent years, but now it seems to have taken a new turn. With all the latest news, it now appears that some of the largest banks in the country have been practicing in the realm of fraudulent property foreclosure. It is not clear whether the banks themselves were aware of what was happening, but one thing is clear for sure. Many times, documents that were forged to appear signed by the borrower were used in foreclosure proceedings to speed up the foreclosure process and get the owner out of their home. The problem is that many banks, including Fannie Mae and Freddie Mac, have been using what have been called “foreclosure factories” to speed up the foreclosure process. Foreclosure factories are large law firms that specialize in the foreclosure process. Well, it turns out that due to the high volume of foreclosures they receive, they were simply filling in the blanks and filling out paperwork and other documents that would have otherwise required the borrower’s signature. That sounds good except for the fact that they and not the borrower were signing these documents, including any missing or necessary affidavits.

So what does all of that mean for the rest of us? Well, several things really. First of all, if you are facing foreclosure, it is important to know that you have some rights. It is also important to know that some of the documentation used to foreclose on your property may not be correct. In these cases, if you can discover this, you may have a legal recourse to stay in your home longer or even possibly have the foreclosure process dismissed without prejudice. It is probably a good idea to review your case with an experienced real estate attorney who can review your file and then adequately inform you of any wrongdoing or paperwork from the mortgage lender. You may or may not have the resources to hire the attorney, however the consultation itself in many cases can be free or a reasonable and nominal fee. Even if you don’t hire the attorney, you will probably stop meeting a little better informed and better equipped to deal with the bank and the legal situation you are in. This is also important to know if you are negotiating a loan modification with your bank. Particularly from now on, most of the larger banks are putting a moratorium on foreclosure due to investigations into the foreclosure process and whether or not there is fraud in that process by the bank or its affiliates. Knowing that in itself can give you a powerful negotiating point of view when trying to modify your mortgage in today’s and still developing environment.

Now that there is the possibility of fraud in foreclosure practices, what’s next? Well, in the short term, as mentioned above, there is a moratorium on foreclosures by some of the largest banks in the country. These banks are conducting investigations into the foreclosure process and making sure everything is up to scratch. Although they tend to downplay it, or perhaps even do so under the impression that they are protecting the consumer from any misbehavior, what they are really doing is covering their butt. The difficulty of wrongful foreclosure processes opens up many problems for banks. On the one hand, if a homeowner is foreclosed on through a process that involved any kind of fraud, then that homeowner may have a legitimate recourse against the foreclosure lender. In addition, it is now coming to light that, in many cases, the foreclosure process was performed by an outside servicer. Seems like no big deal, right? Well, if you consider that the third party servicer may not have been the legal owner of the actual note, then that party never really had the right to foreclose! This problem is huge and is wreaking havoc on pending home sales and even properties currently listed as REOs in Hernando County with agents who have been hired by the bank as sellers to market and sell the property. There have been numerous listings in Hernando County and much of the rest of the country that have been recalled pending further investigation into the foreclosure process. When you consider that the foreclosure listing currently makes up a large portion of the inventory available in the Hernando County real estate market, the ramifications of this little mess are enormous. Imagine if you are buying a home that you really love. You’ve spent money on all of your inspections and appraisals, and then just before you’re ready to close, the bank stops the sale because this is one of those properties that may have been illegally foreclosed. They will offer a refund of the security deposit, but most likely all the rest of the money spent has been lost. In some cases, the bank may offer a contract extension, but that leaves the buyer in limbo, as no actual closing time can be set at that time. When the added stress of a buyer notifying the landlord and hiring movers waiting to move into the new home is considered, this can cause significant problems for a buyer who is on the wrong side of this transaction. The buyer should ensure that their agent performs all necessary due diligence before engaging in any transaction where the property in question is a foreclosure sale to prevent these issues from arising later in the transaction. These current development events make it more important than ever to ensure that a buyer enlists the services of an experience agent who is familiar with distressed property and all the problems these sales can pose. It is equally important that all title work and title commitments are thoroughly reviewed by a professional real estate agent and possibly even an attorney to ensure that there are no exclusions to the title policy that inhibit the buyer’s ability to file a claim later.

In light of current developments, stories are emerging in different parts of the country where these practices have caused a break in the title chain. Because some of these foreclosures were filed by third-party servicers who may not have legally owned the note, making the foreclosure at fault, there are now cases where the foreclosure is being contested after the Homeowner has been evicted. In a recent development in California, a homeowner was executed and evicted. The house was then resold to an investor, who subsequently remodeled it and spent more than $ 40,000.00 on repairs. He then re-listed the house and sold it to another couple. Days before the next closing, the original owners’ attorney found flaws in the entire foreclosure process, and the original owner has now regained possession of his home and has moved out. This is causing a big problem for the person who bought the house and spent money on the rehab. It also caused a big problem for the original owner who was evicted and wrongfully executed. Of course, it is surely a problem for the new buyer as well. Litigation of a case like this can take anywhere from months to years in the meantime, leaving all parties in limbo. Other similar cases are emerging and more litigation is expected across the country.

Buying foreclosure can be a great way to save money and buy a home that is undervalued even in today’s market. Potential buyers should be very careful when selecting the right team of real estate professionals, including real estate agents, lenders, title companies, and in some cases, attorneys. Now more than ever it is important to have the right professionals representing the buyer. Conducting due diligence can make the difference between closing down and owning your new dream home or staying out in the open while all other parties debate matters in civil court. To avoid these issues, buyers should be encouraged to carefully research their real estate agent and make appropriate decisions regarding representation. Never before has a buyer’s declaration been more accurate. Buyers shouldn’t be discouraged from jumping in and buying a home. With prices falling and rates at the lowest point since about 1971, there has never been a better time to buy a home. Rather, they should be more careful in selecting who they represent and educate themselves regarding the potential dangers that may be associated with purchasing distressed property. Of course, if you can negotiate a lot in a house that is owned by a private person instead of a bank, none of the above problems would apply.