Foreclosure Moratorium – Does it Affect Me?

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Phones are ringing and emails loaded with links are flying!  What does the latest foreclosure debacle, the fact that errors or omissions have been/are being discovered in previous residential foreclosures mean to homeowners being threatened with foreclosure, to bank sellers who have already foreclosed, to potential buyers, to mortgage lenders and to real estate professionals? 

Many, many residential mortgages have not been retained and serviced by the lender who initially made the loan.  Over the years, most mortgage debt instruments (mortgages, for short) have been sold, resold and resold again on the secondary financial market.  Homeowners routinely received notices that their mortgage had been sold and that “the new mortgage servicing company is (insert name of new mortgage company here).”  Payments were dutifully sent to the new company until the next notice arrived.

It’s come to light that some locally required fees due upon sale of a mortgage debt instrument have not been paid AND that some documents were not recorded to correctly document the “ownership” of the mortgage.  When today’s mortgage servicing company believes it has cause to foreclose on a homeowner due to nonpayment, that servicing company may have a devil of a time proving it actually owns the mortgage instrument and has the legal standing to enforce it.

If you’re a HOMEOWNER being sent foreclosure notices, your mortgage company MAY have temporarily suspended foreclosures in your state.  For example, Bank of America has suspended foreclosures in all 50 states. 

However, you should know that all 50 states’ Attorneys General have joined with President Obama in calling for the end to any foreclosure moratoriums.  The reason?  Foreclosures happening today are actually likely to be the best documented and correctly done due to these recent developments. 

Bank sellers, on the other hand, who have vast inventories of previously-foreclosed properties, are beginning to examine that inventory carefully to determine which properties may be safely sold and which ones have “clouds” on their titles which might prevent an eventual buyer from being able to obtain title insurance, both for themselves and the buyers’ lenders. 

This past week, in fact, a few bank sellers halted a small number of closings at the closing table because the bank sellers could no longer fulfill their contractual obligations to provide owner’s title insurance to the buyers.  Apparently the title insurance companies were demanding that the bank sellers indemnify the title insurance providers against future claims arising out of improperly done foreclosures in the property’s past.  All indications are that bank sellers will ask buyers already under contract to extend the contracts to allow the bank sellers to verify that title insurance can be provided at terms acceptable to all parties. 

Should Buyers Avoid Foreclosed Properties?

No, not at all.  Buyers should simply be aware that extra steps are being taken which are in the Buyer’s best interests to ascertain that title being conveyed is “good and marketable”.  Buyers, as always, are advised to get owner’s title insurance.  Most states mandate owner’s title insurance.  Unfortunately, Georgia isn’t one of them, but good agents and closing attorneys stress its importance to buyers. 

Real estate agents, especially Realtors® (licensees who are members of local Boards of Realtors requiring them to abide by a national Code of Ethics) understand the importance of a good and marketable title.  Agents showing bank-owned properties to potential buyers should check with the Listing Agent to determine whether this property’s bank-owner is prepared to convey title insurable by a title insurance company or whether the property’s title needs “corrective action”.  Listing Agents are already beginning to demand this information from their bank seller clients.  No one wants to spend time, energy and money marketing, inspecting and appraising a property which can’t be sold. 

In the meantime, mortgage lenders are open for business with incredible low rates for solid credit buyers and homes in good condition.  What if the property is a little (or more than a little) beat up and in need of TLC, as many bank-owned properties are?  That’s OK.  There are great rates available for “rehab loans”, too.

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5 Responses to “Foreclosure Moratorium – Does it Affect Me?”

  1. Simah Benyamin Says:

    Great informational article. I’ve been very concerned since this came public. I do feel a little better. I have always advised my clients to get Title Insurance at closing; most Attorneys have actually just included it on the HUD. Thank you for the update and encouragement.

  2. Carolyn Nicholes Says:

    It’s so important for everyone to be aware of this now. Good, timely article, Ann!

  3. Arthur Harris Says:

    Great article Ann, thanks.

  4. Linda Gregory Says:

    Ann,

    Thanks for this information. THere have been so many questions and very little information about what is happening.

  5. Bobbie Conner Says:

    I appreciate your perfect timing with the article. Lots of helpful information. Thanks Ann.

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