Professional Home Staging and Photography Blog: Mortgage foreclosure errors could cloud titles for a long time

Mortgage foreclosure errors could cloud titles for a long time

Silverstone Ranch, Las VegasThe wounded mortgage industry has been working as best it can to pick itself up from the canvas, with massive support and guidance from the government. It has instituted many internal policy changes, on one hand, to correct the grave underwriting, mortgage-backed security and other mistakes made in the not too distant past. On the other, Washington has come up with its own legislative cures to prevent another spectacular mortgage and real estate collapse from creeping up on the country again. Despite the continuing uncertainty and weakness in housing, cautious optimism is also entering into the mix. Maybe the worst is over, or about to be over, many hope.

And then another unexpected lightning bolt strikes the still vulnerable home loan industry.

Evidently in their haste and lack of qualified staff - other valid reasons may come to light later - several large mortgage providers and loan servicers seemingly have signed off on foreclosures without bothering to read the documents. In essence, they have failed to carefully scrutinize them for accuracy before submitting them to courts. Borrowers are increasingly contesting their home repossessions because of this. If the process was flawed, the titles to the properties the banks received through foreclosure are smeared. While the courts are trying to untangle these challenges, in the meantime mortgage lenders can't sell their REOs - real estate owned - due to defective titles. It is possible many borrowers could get their homes back.

As a result, GMAC Mortgage - a division of Ally Financial - has stopped all evictions while it contemplates its next move. Similarly, JPMorgan Chase has requested courts to suspend foreclosure decisions for now. Bank of America has also held up foreclosures in 23 states while reviewing its documents. They - and predictably many others - are well aware of potential lawsuits and want to proceed cautiously. At this point several states - Florida, California, Iowa, North Carolina, Illinois, Connecticut and Texas - are investigating the matter. Conspicuously absent from the list are such hard-hit states like Nevada and Arizona. Logically speaking they have a load of mortgage borrowers whose homes were possibly repossessed under the faulty processes and should now be in the forefront in protecting their residents.

The worst of this could be that mortgage borrowers who lost their homes during this housing meltdown could challenge years later the repossessions. That puts a cloud on a title and the current owner, who probably purchased an attractively-priced foreclosure, say in Las Vegas, cannot now sell because of the defect. In fact, he likely isn't even the legal owner of the property at that point. Ownership rights normally surface during a title search when a property is under a sales contract. What a mess in the making. This could potentially blow up into a truly toxic situation for the mortgage lending and real estate industries desperately looking for more light at the end of the tunnel.





Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 10 commentsEsko Kiuru • October 02 2010 03:25PM


Esko - You are absolutely right, the foreclosure errors by the unqualified staff will cause negative impact on the market. Excellent information.

Posted by John Pusa, Your All Time Realtor With Exceptional Service (Berkshire Hathaway Home Services Crest) over 8 years ago

Esko, well these major lenders have been sliding by for a long time now without hiring enough people to handle the work load. Now they are going to wish they had, because this will most likely end up costing them more than the salaries they saved.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 8 years ago

I understand that Nevada is not yet effected by this mess.  Can you imagine the damage that will be done to title companies and how REOs will just sit and sit on the market if anything comes from all of this?

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 8 years ago


It's this side of baffling what these banks have been doing.

Posted by Esko Kiuru over 8 years ago


This will cost the banks big time and the whole housing industry, too.

Posted by Esko Kiuru over 8 years ago


I suspect it won't be long before Nevada is right in the middle of this latest mishap. When is it going to end?

Posted by Esko Kiuru over 8 years ago

Esko:  If I knew when it would end I could be one rich girl huh?  Always changing and shifting to get in front of the next trend!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 8 years ago


That's the way to do it, keep your ear close to the rail.

Posted by Esko Kiuru over 8 years ago

The one two punch of the moratorium on Trustee Sales (no new inventory) coupled with the freeze on closing REO transactions that were already in contract with a Buyer (no closing, no revenue) can't make for a pretty picture for large REO teams with a large fixed overhead - and who knows when things will start moving again?

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 8 years ago


Exactly. This is wait and see for a while.

Posted by Esko Kiuru over 8 years ago