First time home buyers whether they are just "shopping" or actively looking for their first time home have to be a little "freaked out" by this whole foreclosure freeze.
If you're a first time home buyer and feeling confused about this "foreclosure freeze" mess, that's a good thing. It means you're taking the home buying process seriously and recognize it for what it is, the biggest investment in your life so far and the first brick in your lifelong financial plan.
Unfortunately if you're relying on the national media to clear things up for you, their sensationalizing of the issue isn't giving you information that's relevant to YOU!.
First of all if you're not reading this post within a couple days of the posting date (October 14th), chances are the information has changed again, but I'll keep you updated as more information becomes available.
To understand this mess you have to know how the process works in the state in which you live. Your state is either a "judicial foreclosure" state or a "non-judicial foreclosure" state.
The foreclosure fraud and "robo-signings" allegations got started in the "judicial foreclosure states". In these states in order for a lender to foreclosure they have to institute legal proceedings, attest to the validity of the documentation, go before a judge and get it approved before they can foreclose.
In a non-judicial foreclosure state, if the homeowner stops making their payments, the holder of the security instrument (deed of trust) can file a notice of default, which triggers a 90 day period in which the borrower can catch up the payments. If they don't a trustee's sale is scheduled and about 30 days later the home can be sold literally "on the court house steps". (I live in California and it is a non-judicial foreclosure state)
Whether or not the lenders followed these steps according to the laws of their state, is really the crux of the issue. Where this gets sticky for you as a first time home buyer, is in regards to obtaining a policy of title insurance.
When you are buying your first home, you will be getting a title insurance policy from the current owner (owner's policy) that insures that no one has a claim to the title of the property the supersedes yours. If the banks are found to not have followed the laws of the states, previous owners could (and given the litigious nature of our society, you can bet on it!) sue claiming they were wrongly evicted from their home.The title insurance is designed to protect you in the event this happens.
As a result of this mess, a couple of the major title insurers have decided not to insure some of the foreclosed properties of some of these lenders (at least for the time being).
In short, if you can't get title insurance, you can't get a loan, which means you can't buy the house.
The good news is you can expect this to get resolved quickly, the housing market cannot withstand an extended "freeze" on the backlog of foreclosed homes.
We'll keep you posted!
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