Great Q&A, in USA Today about the current foreclosure freeze!
Foreclosure procedures undergo extensive review
By Stephanie Armour, USA TODAY
Q: How did this come to light?
A: Lawyers for homeowners fighting foreclosures took depositions from officials who prepare legal documents to get court approval to foreclose. The document signers — who have now been dubbed robo-signers — said they signed thousands of affidavits without reviewing the supporting papers or having the affidavits signed in the presence of a notary. Both are supposed to be done before foreclosure papers are submitted to courts in about 23 states that require judicial approval for all or most foreclosures. Some lawyers allege there were instances of fraud, too, including backdated documents and forged signatures.
Q: What's happened so far?
A: Some major banks have suspended foreclosures while they review their procedures; others are proceeding while doing their reviews. Bank of America has suspended foreclosures in all 50 states. GMAC Mortgage has suspended evictions and foreclosures in the states that call for a judge's approval and is reviewing foreclosure practices in the others. PNC Financial Services and Litton Loan Services are reviewing their practices. JPMorgan Chase suspended foreclosures in 56,000 cases in the judicial approval states and is reviewing its practices in a handful of the other states.
Q: Who is investigating this and what could be the outcome?
A: State attorneys general have launched a joint investigation. The Justice Department is reviewing the matter. The Office of the Comptroller of the Currency, which regulates the nation's largest banks, said Friday that it is examining banks' foreclosure procedures, and the Federal Housing Administration is conducting a review. The Senate Banking Committee has scheduled a Nov. 16 hearing.
Possible outcomes include civil penalties, criminal prosecutions, the creation of an independent monitor to oversee foreclosure practices and legal settlements under which lenders agree to do more to get struggling borrowers into mortgage workout plans to help them avoid foreclosure.
Q: What about a national moratorium on foreclosures?
A: Some members of Congress have called for one, but the Obama administration has rejected that idea out of concern that a blanket halt to all foreclosures could damage the fragile housing market's recovery and, with it, the economy.
Q: Why is this controversy important?
A: Lawyers and consumer advocates for homeowners say that if banks are found to have acted illegally, courts could see a wave of challenges in both current and past foreclosure cases.It could lead to title claims in courts, where former homeowners who lost their homes in foreclosure actions assert they still own them, even after the homes have been sold. Banks say that even if procedures were not followed correctly, there's no mistake that the homeowners are in default and that the banks have the right to foreclose.
Q: What impact could this have?
A: Foreclosures already take a year or more to complete in some states and could slow further as judges review documents more thoroughly and banks tighten procedures. That could keep some homeowners in their homes longer but might also postpone the sales of homes that have been abandoned or that banks have repossessed, keeping them vacant longer.
Delays could be costly for banks and taxpayers, because banks and government-owned mortgage giants Freddie Mac and Fannie Mae all must continue to pay maintenance and other expenses on foreclosed properties they can't sell. Freddie and Fannie own or guarantee more than half of all first mortgages.
Q: What could this mean for the housing market?
A: If foreclosures are delayed significantly, economists say the housing market recovery could suffer.
Significant delays in completing foreclosures could mean it will take longer for prices to recover, economists say. About 30% of all house sales now are foreclosures or other distressed properties that sell at substantially lower prices than homes whose owners aren't in financial difficulty. That pulls down market prices overall.
The longer home prices stay depressed, the longer millions of homeowners will be underwater, owing more on their mortgages than their homes are worth. About one in four properties are underwater, making it difficult for the owners to sell their properties or refinance their mortgages.
Q: Should I buy a foreclosed home?
A: Real estate experts say buyers shouldn't avoid foreclosures. But you may want to buy a title insurance policy to protect against a claim stemming from a previous foreclosure, says Guy Cecala of Inside Mortgage Finance.
Lenders generally require title insurance before they'll approve a mortgage.
Short sales — where lenders agree to let owners sell houses for less than they owe — should not be affected by the foreclosure controversy, says Rick Sharga of RealtyTrac.
Christopher Immel, a lawyer at Ice Legal, a Florida law firm that represents homeowners challenging foreclosures, says prospective buyers of foreclosed properties should examine court case files for missing documents and incorrect dates.
He recommends hiring an attorney to review the file.