Mortgage Issues Cloud Recovery

Weitz - An article from the Wall Street Journal followed a Washington specific analysis of the mortgage issue.

Sales of foreclosed homes have helped lay the groundwork for housing recovery in many of the nation's boom-to-bust markets. Now, some real-estate agents say that recovery is at risk because of delays in bank foreclosures.

Weitz – what recovery are they referring to?!

Homes are being pulled from the market, and buyers—especially investors intent on quickly reselling foreclosed properties—are retreating to the sidelines amid growing uncertainty over the extent to which banks filed fraudulent foreclosure documents.

On Tuesday, Wells Fargo & Co. said it had started a review of all pending home foreclosures in states where certain paperwork was required but it did not suspend foreclosures or foreclosure sales, as have other big banks.

Meanwhile, GMAC Mortgage, a unit of Ally Financial Inc. and one of the first to suspend some foreclosures last month, expanded its review to all 50 states. Initially GMAC's review was limited to 23 states that require court approval for foreclosures.

Bank of America Corp. last Friday agreed to halt all foreclosures and foreclosure sales, the first bank to do so.

Uncertainty about the legitimacy of foreclosures threatens the market because about one in four homes sold during the second quarter was in some stage of the foreclosure process, according to RealtyTrac Inc., which tracks foreclosure filings.

Weitz – take note – ¼ of all homes sold in the 2nd quarter were at some stage of the foreclosure process. I’m seeing a lot of short sales in which the borrower has stopped paying the mortgage, and then tries to get a short sale for varies reasons including a smaller credit hit.

Some in Congress have called for a nationwide foreclosure moratorium, but Obama Administration officials said they didn't support such a broad move.

"If there is an empty house in the neighborhood that somebody has a contract on, and their closing date is next week, and there is a moratorium, that closing doesn't happen," Robert Gibbs, the White House press secretary, told reporters on Tuesday.

The administration's stance illustrates the policy conundrum: Officials say they want to root out possible wrongdoing by banks, but they also want to avoid policies that derail the fragile housing market by delaying inevitable foreclosures.

Weitz - Delaying foreclosures does not derail the fragile housing market...in fact, it helps short term as it would presumably keep some homes off the market at discount prices. The delay, however, would simply prolong the track to a true bottom.

The crisis has also put a cloud over whether banks can assert clear ownership of those properties. In the past week, two of the nation's largest title-insurance companies, Stewart Title Guaranty Co. and Old Republic National Title Insurance Co., have issued guidelines that could make it much harder to write policies on homes foreclosed by certain banks and in certain states.

"Title companies would be crazy to ensure title on anything remotely associated with a foreclosed property because we don't know how this is going to resolve itself," said Mark Hanson, an independent housing analyst in Menlo Park, Calif.

The result: Not only could sales slow on foreclosures now listed for sale, but it could also become harder to sell or refinance properties that have been foreclosed upon at some point in the past few years.

"Title-insurance costs can go up, purchasers can flee from auctions, and new home-buying families will decide to wait longer before re-entering the market," said Peter Swire, a law professor at Ohio State University who until August served as a top adviser on housing-finance issues in the White House.

So far, officials have downplayed those concerns. "We have not seen broad steps at this point by title insurers that would pose a significant risk to the market," said Shaun Donovan, the secretary of Housing and Urban Development.

But he said banks needed to correct their mistakes quickly "to give the market confidence that the...foreclosure process is working in the right way."

Weitz- good luck with that, banks. I bet your workers that you pay 12 dollar/hour will easily be able to sift through millions of documents and insure that properties have been transferred properly and abide by the ancient and complex real property laws of the U.S.....most attorneys couldn’t do this with one document, but I’m sure your staff will have no problem doing it with millions of documents.

Banks have begun discussions with title-insurance firms to prevent sales from
stalling further. Bank of America, for example, reached an agreement with Fidelity National Financial Inc., the nation's largest title insurer, last week to provide warranties that would indemnify the insurer against claims that resulted from foreclosure errors by the bank.

Real-estate agents are particularly worried about the situation's impact on investors, the buyers who fix up foreclosed homes for resale. Investors accounted for 21% of all home sales in August, according to the National Association of Realtors.

Some analysts say the loss of investors could be particularly damaging to the housing market because some they tend to buy large numbers of units at once.
"We're the lubricant in this recovery," said Gregor Watson, with McKinley Partners, a development company that has spent more than $35 million buying hundreds of foreclosed homes in California this year. "To create more doubt in investors' minds will have a dramatic impact on home pricing."

Mr. Mirmelli has already witnessed the downside of legal tangles between banks and homeowners. He said he purchased a Las Vegas home four months ago that remained occupied by the homeowner, who is suing his bank alleging that it shouldn't have foreclosed on the property because he had been pre-approved by the bank to sell it for less than the amount owed.

"It's frustrating," Mr. Mirmelli said. "The bank has taken our money, but we're still trying to get possession of our house."

Weitz – here’s the deal. I’m not terribly concerned with the ‘title issues’ in Washington State. (I say this because I assume the government will eventually let the paperwork problems slide as to hold the banks accountable to some of the more historic laws would create a title disaster).

Here’s why the title issues won't be an issue:

1) Washington is what is called a ‘race-notice’ state for solving title disputes. Thus, if you buy the home and record the title with the County Recorder before anyone else who makes a claim for the property.... You have won the ‘race’ to provide ‘notice’ to other potential owners…you will be the rightful owner. Period.

Here are the three situations that could arise in foreclosure:

a) Who holds title to the home before foreclosure? The home owner. That was easy.

b) Who holds the title if a buyer buys it at foreclosure? The buyer. There will be no issues with title assuming the title is properly recorded. That was easy too.

c) Who holds title if the bank forecloses, and no one buys the house at the foreclosure auction? The note holder. This one may get interesting, but there are very few foreclosures where the actual mortgage holder is unknown.

The issue, as I said, is whether the banks have the ‘right to foreclose’ because of the MERS issues, and whether the banks were fraudulent in this whole foreclsoure process (ie. fraudulent documents, bad notarization). (Look for a detailed post on the MERS issue later this weekend - I should warn you that you should not be operating heavy machinery when reading as it will cause drowsiness;).

For more information on your rights in foreclosure, consider contacting a Seattle Foreclosure Attorney.

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