On Again Off Again Foreclosures, On Again

THE FORECLOSURE CRISES WILL NEVER END
October 18, 2010: Bank of America reviewed foreclosures in the 23 states where a court must sign off on the proceedings, and it is now restarting the process on 102,000 cases, the company said today. The company said the first of the new round of affidavits will be submitted by Oct. 25, and that it will continue its review in 27 other states.

The story so far: An epic housing bust and sustained high unemployment have led to an epidemic of default, with millions of homeowners falling behind on mortgage payments. So servicers — the companies that collect payments on behalf of mortgage owners — have been foreclosing on many mortgages, seizing many homes.

But do they actually have the right to seize these homes? Horror stories have been proliferating, like the case of the Florida man whose home was taken even though he had no mortgage. More significantly, certain players have been ignoring the law. Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation; instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by “robo-signers,” or low-level employees who had no idea whether their assertions were true.

Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

Some have called the foreclosure sale freezes a “short term benefit”, because forestalling foreclosures means less supply on the market, less competition for homes, so that should create a healthy buying environment for those homes that are on.

Pick your poison.

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