"ForeclosureGate" - Legit or a Blip?

Flooding the news this week are announcements of new and existing foreclosures  being suspended due to national attention regarding the legality of lender’s review of paperwork and transfer of title. Attorney Generals in all 50 states have launched investigations regarding lender’s foreclosure proceedings.

Every state processes foreclosures differently.  Unlike California, many states require judicial review of foreclosure proceedings.  Allegations have surfaced in 23 states stemming from the involvement of the court system and the associated documentation and transfer of title.

So what are the allegations?

Lack of Review of Foreclosure Documentation and Possible Forgery

Law firms in these 23 states review foreclosure documentation in the course of this judicial process.  Investigations now contend that this documentation was outsourced to “robo-signers” who claim they signed 8,000-10,000 documents per month at a rate of about a minute per document.  Lawsuits are being filed stating that missing signatures were forged and that proper review of documents was impossible under that timetable. 

For more news regarding role of "robosigners," here is a recent New York Times article

California, on the other hand, does not involve the court system in foreclosure proceedings.  There may be “robo-signers” employed on behalf of banks, but that is still to be determined.  Bank of America, to date, is the only bank to halt foreclosures in California and claims there is no wrongdoing.  Other mega-banks such as JP Morgan and Wells Fargo are reviewing the roles of robo-signers in their organizations but have not halted any foreclosures in California to date. 

That hasn’t stopped California lawyers from getting involved however.  Here’s a recent story on California foreclosure

Improper Transfer of Title

In the midst of banks failing and crises occurring, it was common for loans to change between multiple lenders.  The transfer of title was largely outsourced to a firm called Mortgage Electronic Registration System (MERS).  When foreclosures began to build this company was used to initiate proceedings.  Now, the question is whether MERS had a legal right to handle these foreclosures if they didn’t actually own the loans.  Even more alarming, investigations are underway as to whether MERS complied with individual state and municipal requirements regarding registering change of title.    Which means if a loan was sold from Bank “A” to Bank “B” but MERS did not complete all paperwork finalizing the transfer, then when Bank “B” forecloses on the home and an homebuyer buys it and moves in, did Bank “B” actually have the right to sell that home?   

For more news regarding role of MERS, here is a recent USA Today article

What Does This Mean For Fresno, California Buyer and Sellers?

All of these investigations and news are still too early to know where it will go.  California has a clearer transfer of title due to courts not being involved.  But, in our litigious state that does not necessarily mean safety for home buyers.  Here is a recent story of a California attorney advising clients to break into their foreclosed home after it was purchased and rehabbed by an investor:  HousingWatch.com

Now, I believe stories such as these are isolated circumstances.   Logically, I would say that within California this foreclosure investigation will only be a blip in which reviews of foreclosures will extend escrow timelines and homes may be delayed in being foreclosed due to increased paperwork and scrutiny.  But, with the volume of homes and money involved in these types of investigations, frivolous California lawsuits could change that scenario.  It’s too early to say.

Sellers –

Sellers whose homes are unaffected by this foreclosure investigations have a competitive advantage.  They can offer buyers delay-free, stress-free escrows that are quite attractive.   Nearly half active homes currently for sale in the Fresno area are foreclosures or short sales.  Bank of America is the largest provider of those properties, which makes “seller-owned” homes a hot commodity.

Buyers - 

Fresno, California is currently ranked as one of the “Top Ten Cities”  in the nation to buy a home for a good reason.  Fresno is currently one of the cheapest places to buy in the United States in comparison to rental rates.   Selling prices (except for a brief blip in June due to conclusion of first time home buyer credit) has averaged between $94-$97 per square foot in Fresno County in 2010.  This means that if you bought a house a year ago or today, the average home price would only have varied $5000.  In contrast, between 2007 and 2008, average home prices dropped from $160 to $108 per sq. ft. which equates to about $100,000 difference in price!  So, prices are low and steady in the area and buyers shouldn’t hesitate to buy if the right home comes along.

To view homes for sale visit: HomesInFresno.com