Courtesy of: Kevin Gonzales, Branch Manager, Russ Lyon Sotheby’s International Realty
Foreclosure Stoppage: As you may have heard, Bank of America has stopped their Foreclosure process and PNC Bank has pulled all of their REO Listings off the market in all 50 states. Chase has suspended foreclosures in all states that foreclose using the Judicial Process (not in AZ where we foreclose in a Non-Judicial manner*). Wells Fargo announced that they do not plan to suspend foreclosures on their properties. Your clients may have questions about what is going on. Here is a brief, very simplified overview of what is going on and why:
1. The MERS Issue: MERS (Mortgage Electronic Registration System) allows banks to buy and sell loans as securities. Almost 97% of loans originated between 2005 and 2008 were done so using the MERS system, including Fannie Mae and Freddie Mac. Furthermore, MERS is the nominee (or servicing agent) these lenders use to foreclose and as such, is not the actual note holder on a property. In addition, many loans were sold in “pieces” (remember terms like derivatives and credit default swaps?). In that case, investors may only own a “piece” or “share” of a mortgage. It would also be hard for these lenders to prove they have an interest in the property. Therefore, it needs to be determined if these lenders have the legal right to foreclose
2. Poor oversight: In many cases, documents are not being properly reviewed prior to initiating a foreclosure. It is noted that some supervisors signed over 10,000 documents a month while admitting they never read what they signed.
3. Proof of the Debt: Since loans are sold from bank to bank or investor to investor, the entity that holds the note may not have the actual deed to the property*. The theory is that the chain of title is incorrect. Attorneys and legislators are attempting to prove that if the lender cannot prove they have a title interest or proof of debt in the property, they have no right to foreclose under the judicial process.
4. Fallout down the road: There is a concern that if a lender improperly foreclosed on a home, then the original owner may have the right to get the home back. If the home was already sold to another buyer as an REO property, then who actually owns the home? What is the ultimate cost to the lender? This is why some banks have pulled their REO listings off the market.
*In AZ, the majority of loans are made with a Note and Deed of Trust, where the borrower holds the deed, although the deed is encumbered by a lien. In the 23 states that use Mortgages, the lender holds the deed to the property until the debt is paid off. This is why foreclosures in AZ are considered Non-Judicial Foreclosures and states that use Mortgages foreclose in a judicial manner.