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We had an attorney discuss this with our office on Tuesday. She doesn't think there will be a flood of properties that were purchased from banks as REOs going back to the original owners, although she acknowledged that we are in truly uncharted waters now. I think the bigger mess will be the gridlock that will occur with buyers of REOs waiting to close. Some of them have already paid for inspections and have earnest money tied up. I expect buyers who were looking for REOs might decide to avoid them now, too. And, although I haven't heard anything about this yet, I wonder if we'll see a drastic slowdown of shortsale approvals. If banks can't produce supporting documents for a foreclosure suit, will they also decide to hold off on short sale approvals until they can be sure that they have the right documentation for those, too? For that matter, will current borrowers whose notes were sold to another company start challenging their banks to see if they are the legitimate receivers of the money they are paying? It is a mess but, there may be a bright side. If things get totally mucked up, it may start to push prices of regular sales up (which will increase the net worth of homeowners) and we may eventually return to a market where there's a significant price difference between regular sales and short sales/REOs, as there should be.
It's interesting. I asked the attorney if we (real estate agents) should, as a best practice, start to inform buyers that there could potentially be problems with REOs now. She said no but I'm not so sure.
I don't know how anyone looking at homes and REO's would NOT know abut the controversy over foreclosures in some states (FL being one)
what do you tell them if they do ask about why some companies have stopped processing foreclosures?
You know that a RE agent has fiduciary duty to some extent to give accurate information to their clients...
I think that is a difficult situation...
and I think this can be a bigger problem that people realize--
there are probably houses that were bought that were not short sales or REO that have not had their titles filed at the county court house...because of the practices of the MER or whatever that company was called...
it would not surprise me if banks using it for their REO properties also sent any regular purchases there as well...
Loves2read, thank you for your reply. A class action suit as you described in your post is exactly what I’m concerned about. I’m afraid of the backlash against the new owners of the properties that would follow.
Big House, thank you for your reassurances, but what are you basing your opinions on? Quite frankly I haven’t found anyone else making such strong statements. Everyone else is being very cautious about predicting what might happen next. Believe me; I wish I could “rest easy”.
As this story continues to unfold, it seems pretty certain that we can expect to see foreclosed homeowners returning to the courts seeking to have rulings overturned. I’ve been following the story for a couple of weeks now and I have yet to see anyone say (with any degree of certainty) that new owners of recently foreclosed homes will not have to relinquish the property.
What I understand, is that title insurance will:
• Cover any costs of defending our claim to the home.
• Reimburse us for the value of the home if someone were to prove we’re not the legitimate owners.
Being reimbursed for the value of the home is not what I’m worried about. In our situation the previous owner was in the home for seven years before he was evicted. I’m afraid he has a chip on his shoulder and has something to prove. He may not be satisfied with just a monetary judgment.
Here are some of the articles I’ve found that have me concerned:
The losers: Recent purchasers of foreclosed homes. A nightmare scenario: Banks probably foreclosed on and evicted families without proper mortgage documentation. It is unclear whether or how courts might overturn those foreclosures. (One expert I spoke with said it would be more likely that the bank would have to offer some sort of restitution to the evicted family, but nobody really knows.) What if you recently bought one of those houses? There’s a whole lot of uncertainty for you, right now. Who Are the Winners and Losers in the Foreclosure Fraud Crisis? « The Washington Independent
Defective Titles:
People who bought homes in foreclosure face their own worries, as paperwork errors raise questions about the validity of the titles needed to prove ownership. "Defective documentation has created millions of blighted titles that will plague the nation for the next decade," says Richard Kessler, an attorney in Sarasota, Fla., who conducted a study that found errors in about three-fourths of court filings related to home repossessions. A defective title means the person who paid for and moved into a house may not be the legal owner. "This is the most important issue of the whole mortgage mess," says Glenn Russell, a Fall River (Mass.) real estate attorney who won a case last year that reversed a foreclosure because of faulty paperwork. "Families are being thrown out of their homes by people who may not have the right to do that." The Foreclosure Mess Could Last for Years - BusinessWeek
Down the Road: Such mistakes may allow former owners to challenge the repossession of homes long after the properties are resold, according to Kessler. Ownership questions may not arise until a home is under contract and the potential purchaser applies for title insurance or even decades later as one deed researcher catches errors overlooked by another. A so-called defective title means the person who paid for and moved into a house may not be the legal owner. Foreclosure Errors Cloud Homeownership With `Blighted Titles' - Bloomberg
This is the most reassuring statement I've see so far, but one needs to consider the source:
Little Impact:
The American Land Title Association said in a statement today that documentation problems “will ultimately have little adverse impact on the new owners” of foreclosed properties. The group represents more than 3,800 title-insurance companies. “It is unlikely that a court will take property from an innocent current homeowner and return it to a previous homeowner who failed to make payments on the loan subject to the foreclosure,” Kurt Pfotenhauer, the association’s chief executive officer, said in the statement. Foreclosure Errors Cloud Homeownership With `Blighted Titles' - Bloomberg
Well written and organized post. :-)
My opinion is based on what I have read on the subject in many areas. That said, I won't be making the rulings on these cases (all individually distinct, yet similar). The homes that have been sold have gone through a number of different processes in order for justice to be handled, and as such each area (and each house) may have to be reviewed and handled separately.
Court processed foreclosures - these have had thier day in court, and once sold through the court foreclosure process, debt obligations claims were presented and handled accordingly. Opportunities were given to settle the unpaid claimes and were not satisfied - the courts ordered the sales, and these will unlikely be over-turned. If the MER paperwork was not in 100% order, the rulings will still be upheld, because the cases were presented and a verdict made, and lack of proper information being presented at that time will not cause them to be overturned. That said, maybe the plaintiff (can challenge that, but will be exposed to the huge debt obligation against them, if in a slight chance the door can be opened) - I doubt that will ever happen - and then they will likely have recourse only to against the plaintiff, not the court, and not the future buyer. The court may mitigate any $$ damages to the plaintiff if things went in the defendants favor at that point.
Short sales - All short sales to date that I'm aware of have had the previous owners sign off and agree to the sales - so I doubt that any exchange of property will happen. Again, there may be a chance for the defendant (home owner) to have a claim, but at this point. I see it as a monitary settlement.
REO - I don't know enough to give a very good opinion on that but expect that it would be dealt with similarly to the short sale process at worst case.
Future foreclosures, and those unresolved at this point - that is where the ball is in the air. But remember, just because the paper work wasn't perfect, the debt obligations, and the failure to make payments are the cause of the foreclosures and shortsales, and the plaintiff's rights are still going to be up-held - they just need to get the paperwork trail correct - and they will. It may take time though, and sure the paperwork should have been done correctly and filed in the counties correctly, but that is a technicality to the issue. And, that is a matter between the jurisidictions and the banks/ lenders/ title companies, and monies will most likely change hands once that is all settled.
Reposession of homes is very unlikely, again, because the debt obligations due to the home owner's failure (for what ever unfortunate reason) is what caused the foreclosures, and because some filed paperwork somewhere by some clerk wasn't done correctly is not going to be enough cause to over turn any sales to date.
I am not the one who will make the decision, again I have read a ton of articles on the subject already. I have been involved in a lot of large real estate transactions, and dealt with banks, courts, and politians my whole career, and although I think I know how they will react - all I can do is consolidate my thoughts and pass it on.
I don't know how anyone looking at homes and REO's would NOT know abut the controversy over foreclosures in some states (FL being one)
what do you tell them if they do ask about why some companies have stopped processing foreclosures?
You know that a RE agent has fiduciary duty to some extent to give accurate information to their clients...
I think that is a difficult situation...
and I think this can be a bigger problem that people realize--
there are probably houses that were bought that were not short sales or REO that have not had their titles filed at the county court house...because of the practices of the MER or whatever that company was called...
it would not surprise me if banks using it for their REO properties also sent any regular purchases there as well...
I'm not sure if the banks mean that they're not going to foreclose on anymore new properties. I deal with many of the big name banks in the area and I have 28 properties listed or in prelist. As of yet they have not pulled any properties from more nor have they indicated they would. As of right now the banks are still processing foreclosures.
When I look at the most recent court forclosure calendars in Manatee, Sarasota and Charlotte counties the schedules are full and I haven't seen any more homes being pulled then the norm for bankruptcy, improper filing, etc.
As far is title is concerned in an REO purchase. The banks usually pick and pay for title. If the buyer chooses they are usually OK with the buyers using their own title company and paying their own title fees.
The banks usually offer only insurable title and not marketable. (http://www.realestatelawseries.com/wp/?p=351 - broken link)
We went to a big Fannie Mae meeting in Orlando last week and one of the buy guys said they were as surprised as anyone else and they are reaching out to get a larger network of attorneys to there won't be so much load on a few select companies. Basically the message was that they are dealing with and it will be dealt with in a short period of time. That meaning by the end of the year.
I'm not so sure that it's going to be as clear cut as you seem to think, Big House - I'm already finding stories about Judges reversing their own rulings when ownership of the note was in question:
Last Thursday, Paul F. Isaacs, a judge in Bourbon County Circuit Court in Kentucky, reversed a ruling he had made in August giving Bank of New York Mellon the right to foreclose on a couple’s home. According to court filings, Mr. Isaacs had relied on the bank’s documentation that it said showed it held the note underlying the property in a trust. But after the borrowers supplied evidence indicating that the note may in fact reside in a different trust, the judge reversed himself. The court will revisit the matter soon.
If the MER paperwork was not in 100% order, the rulings will still be upheld, because the cases were presented and a verdict made, and lack of proper information being presented at that time will not cause them to be overturned.
Criminal case decisions can be reversed on appeal for various reasons and be sent back to the same court where the original faulty decision was made--
so I see nothing untoward in the idea that foreclosures might be called back IF there is new information provided that there was fraud involved in the original decision--ESPECIALLY if it can be proven that there was a conspiracy to commit fraud by ignoring the laws' requirements of due dilligence and the knowledge that ALL required documents and requirements were NOT accurate...
so much of this seems left up an individual judge and the judges apparently have not been equal in their scrutiny of the materials placed in front of THEM--
Judges who have approved foreclosures where THEY failed to discover -- by actually reading part of the presented legal materials --have become complicit in making a fraudulent finding--
From what I read this has come to a head because SOME judges have refused to process foreclosure hearings after they read documentation and caught the mistakes that were NOT discovered/remedied by the MER officials who were paid to do just that--for judges who just passed the improper documentation along--then you have TWO wrongs--not one right...
Just because someone signs off on a civil proceeding does not mean there is no recourse if that proceeding is discovered to be illegal/faulty...
While it might be the EASIEST way to say that the banks or MER will offer financial settlement to the homeowners who MIGHT have had their properties foreclosed w/o due process--I think that making that decision without the consent of the affected homeowners is just as much taking advantage of them as the original foreclosure process...
and from the specific examples I have read have included cases where the entire foreclosure process was done w/o giving the homeowners "a fair shake" in general terms--
that sometimes the home being foreclosed was supposed to be undergoing remediation to more affordable terms and the owners were deliberately stalled by the lenders owning the mortgage and fell further and further behind so there was no way they could satisfy the original mortgage agreement...
that sometimes the entity calling for the foreclosure does not hold proof of the original mortgage title--something that might seem unimportant when everyone "knows" they have the mortgage--but a technicallity that can't be breached for expediency...
I think there are many foreclosures that fall into different levels of "improper" foreclosure--and some of them are more egregious than others--but it will take so much time and money and KNOWLEDGE to dig through all of them that ti will be like trying to rebuild the house of straw piece by piece...
I don't envy anyone who is given the task of trying to sort out this snakes' nest of mischief...
If the MER paperwork was not in 100% order, the rulings will still be upheld, because the cases were presented and a verdict made, and lack of proper information being presented at that time will not cause them to be overturned.
Criminal case decisions can be reversed on appeal for various reasons and be sent back to the same court where the original faulty decision was made--
so I see nothing untoward in the idea that foreclosures might be called back IF there is new information provided that there was fraud involved in the original decision--ESPECIALLY if it can be proven that there was a conspiracy to commit fraud by ignoring the laws' requirements of due dilligence and the knowledge that ALL required documents and requirements were NOT accurate...
so much of this seems left up an individual judge and the judges apparently have not been equal in their scrutiny of the materials placed in front of THEM--
Judges who have approved foreclosures where THEY failed to discover -- by actually reading part of the presented legal materials --have become complicit in making a fraudulent finding--
From what I read this has come to a head because SOME judges have refused to process foreclosure hearings after they read documentation and caught the mistakes that were NOT discovered/remedied by the MER officials who were paid to do just that--for judges who just passed the improper documentation along--then you have TWO wrongs--not one right...
Just because someone signs off on a civil proceeding does not mean there is no recourse if that proceeding is discovered to be illegal/faulty...
While it might be the EASIEST way to say that the banks or MER will offer financial settlement to the homeowners who MIGHT have had their properties foreclosed w/o due process--I think that making that decision without the consent of the affected homeowners is just as much taking advantage of them as the original foreclosure process...
and from the specific examples I have read have included cases where the entire foreclosure process was done w/o giving the homeowners "a fair shake" in general terms--
that sometimes the home being foreclosed was supposed to be undergoing remediation to more affordable terms and the owners were deliberately stalled by the lenders owning the mortgage and fell further and further behind so there was no way they could satisfy the original mortgage agreement...
that sometimes the entity calling for the foreclosure does not hold proof of the original mortgage title--something that might seem unimportant when everyone "knows" they have the mortgage--but a technicallity that can't be breached for expediency...
I think there are many foreclosures that fall into different levels of "improper" foreclosure--and some of them are more egregious than others--but it will take so much time and money and KNOWLEDGE to dig through all of them that ti will be like trying to rebuild the house of straw piece by piece...
I don't envy anyone who is given the task of trying to sort out this snakes' nest of mischief...
It is an ugly mess - no doubt. But this is a civil action, not a criminal action. Again, I highly doubt that any houses that were foreclosed on and sold as the result of going through the court will be over turned. Not that it can't happen, but again, it is very unlikely.
This could really cause a major blow to the financial recovery. The delay in dealing with this issue timely, is very costly to a number of parties.
It could however, have a positive effect. By stemming the tide of foreclosures for a while will lessen the supply of foreclosures out there, and drive the price of homes up - at least temporarily. That will float everyones equity boat, and that may be a good thing, if prices rise somewhat. On the other hand, I suspect that Bank of America and other banks have been dragging their feet in a huge way, and making it very difficult to borrow when potential buyers want to finance a new home. This fiasco, has and probably will continue to cause the banks NOT to want to lend money. And, that is what really contributed in a big way to derailed the financial markets in the first place.
The case where the judge reversed his ruling, the home had not yet changed hands to a new buyer. In those cases, I think a financial adjustment may be made to contempensate the injured party. No one is entitled to an un-just situation, but in those cases where the property has changed hands, I don't see the homes being repossessed. Where the banks have acted wrongly, then an equitable adjustment will be awarded - that is how civil actions are handled. NORMALLY. AGAIN, I'm not the judge, or the bank.
Last edited by Big House; 10-10-2010 at 04:21 PM..
Civil cases can be appealed/reversed just as criminal ones
this article on Seeking Alpha written by someone who is just a guy --not a national authority--and is from Canada I think--
but he has some good info and some hype and some aspects of title insurance are sort of ignored since foreclosed homes that reentered the market and were bought --sometimes more than once--and got title insurace..
so while he tends to agree with how I think this problem could really develop--it is pretty dramatic presentation
but there is one statistic in it that really caught my eye--a Florida attorney who did review of foreclosed home documents says he found defects in 76% of filings--75% is HUGE percentage--and there is no way that could happen without collusion and conspiracy--and that means fraud...
errors could be small, medium, or large I guess depending on the individual filing but sheese--
the idea that the same people who totally ignored common sense and fiscal prudence are the same people who are taking care of getting OUT of the problems that credit default swaps created--
just asking for trouble...
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