October 18, 2010

Questions and Answers About the Foreclosure Freeze

Erroneous documents. A freeze on foreclosures. Charges of fraud.

A flurry of developments have sketched an alarming scenario: that major U.S. banks rammed through foreclosure after foreclosure without giving many borrowers a fair shot at keeping their homes.

Questions have arisen about the scope of the problem, the effect on the nation’s foreclosure epidemic and the likelihood that some people could regain their foreclosed homes.

Here’s what you need to know about the unfolding foreclosure mess:

Q: What’s the problem I’m hearing about foreclosures?

A. Four of the nation’s largest banks – JPMorgan Chase & Co., Ally Financial’s GMAC Mortgage unit and PNC Financial – have stopped foreclosures in some states. The biggest bank, Bank of America Corp., has done so in all 50 states. JPMorgan has done so in 41. They’re checking to see if their employees made errors in loan documents needed to complete foreclosures. The banks say they think they’ll resume foreclosures in those states within weeks. Others think it could drag on longer, especially as more state and federal officials intervene.

Q. What kinds of errors?

A: Evidence has surfaced of mistakes in the documents that mortgage companies present to a judge to foreclose on a home. Lenders failed, for instance, to show they have a legal right to foreclose on borrowers’ homes. And some mortgage company employees have acknowledged they signed foreclosure documents without reading them. Many documents also appear to have been signed without a notary public witnessing that signature. That’s a violation of law.

Q: How did this happen?

A: Mortgage companies have been overwhelmed by paperwork involving millions of foreclosures and defaults. Consumer advocates say the companies took shortcuts to manage the onslaught rather than hiring more staff. One way was to have a bank or a bank representative “robo-sign” thousands of documents he or she hadn’t actually read.

Q: How widespread is the problem?

A: Only JPMorgan Chase has spelled out how many foreclosures it’s suspending: about 115,000. But consumer advocates say the problems with foreclosure documents are widespread. Two of the biggest lenders, Wells Fargo & Co. and Citigroup Inc., say they have no plans to suspend foreclosures. They say they’re confident they complied with state laws.

Q. Why is this all becoming known just now?

A. Consumer advocates had warned for years about shady foreclosure practices at mortgage companies and law firms they used. But the practices seized national attention only after GMAC’s Sept. 20 announcement that it would halt some foreclosures. GMAC acted after evidence surfaced in Maine and Florida that a company employee had signed thousands of foreclosure documents without reading them. Another likely factor in GMAC’s move was the Florida attorney general’s August decision to review foreclosure practices at two law firms GMAC used.

Q: Why did some lenders halt foreclosures only in 23 states?

A: Those states require foreclosures to be approved by judges. Statements before a judge are made under oath. Any falsehoods are subject to perjury charges. If false documents in such cases aren’t corrected, it’s possible these foreclosure cases could be dismissed.

Q: What do banks mean when they say they’re halting foreclosures?

A: It all depends on the bank. Most, like GMAC, are still initiating foreclosures but are no longer evicting people or selling foreclosed homes in states that require judges’ approval. Others, like Bank of America, have stopped seizing foreclosed homes but continue to sell homes that had already been foreclosed on and are still processing new foreclosures.

Q: What does all this mean for the foreclosure crisis?

A: The foreclosure freeze should cause only a temporary slowdown in the number of homes seized by lenders. One reason is that four states hardest hit by foreclosures – Nevada, Arizona, California and Michigan – aren’t among the 23 states where many lenders are halting foreclosures. Even if the pace of foreclosures slows, some analysts say it should pick up again by spring.

Q: How will all this affect home prices and sales?

A: In home markets where foreclosures are on hold, prices could stop falling, at least for a while. That’s because fewer foreclosed homes will be for sale. Agents who manage sales of foreclosed homes are already seeing some of those sales put on hold. These agents can’t complete transactions involving mortgages handled by the lenders that have halted foreclosures. And a major title insurance company, Old Republic National, has said it won’t insure foreclosed homes sold by JPMorgan and Ally Financial. It says it worries that flawed foreclosure paperwork could put the home’s ownership in doubt. Another, Stewart Title, is clamping down on sales of foreclosed homes that may be linked to flawed documentation.

For the full article: Charlotte Observer
By ALAN ZIBEL and CANDICE CHOI
AP Business Writers
(Zibel reported from Washington. Choi reported from New York. AP Real Estate Writer Alex Veiga contributed to this report from Los Angeles.)

For more information regarding foreclosures or buying and selling properties, contact Showcase Realty.

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