Bank of America announced last Friday that it was halting foreclosure proceedings in all 50 states so it could perform an internal review of its foreclosure processes. This follows the announcement that several major lenders in 23 "judicial foreclosure" states (i.e. states that require a court hearing before a foreclosure in finalized) have suspended foreclosures after concerns arose about the legitimacy of those proceedings.
Much has been written about this in the past five days, and it is a complicated and tangled web. The one thing I am convinced of is that this latest injection of uncertainty is not going to help the housing market, the economy or the public's perceptions of banks. It will also make some attorneys rich.
There are basically two material concerns at issue here that are being investigated:
1) Right to foreclose – does B of A (or whomever) actually OWN the loan they are foreclosing upon, and do they have the legal right to foreclose? Attorneys for foreclosed homeowners are asking that, prior to foreclosure, the original note and deed be produced by the lender. Because many of these loans have changed hands so many times (loans originally funded by WaMu, Indy Mac, Countrywide, etc.), in deals that were often brokered under severe duress by the federal government, the banks literally have no idea where thousands of these notes and deeds physically are located.
2) Costs and fees – at every stage of the foreclosure process, there are fees and penalties that are piled on to the borrower’s debt list. Attorney fees, publication fees, filing fees etc… in the 23 so called “judicial foreclosure” states, the bank is supposed to submit an affidavit verifying that these fees have been reviewed and are legitimate prior to foreclosing. The truth is that employees at Bank of America have admitted signing up to 300 of these affidavits in a single day, which means that the costs, fees and legal mandates are not being verified prior to foreclosure.
When clients sign a note and the deed of trust, closers often joke that the 15 page deed can be summarized in ten words. “If you pay, you stay. If you don’t, you won’t.” At the moment, that summation is in doubt.
These cases right now are not going to “save” any homeowners. They are simply going to cause delays and inject more fear and confusion into the housing market, which cannot help the recovery process or the nation's fragile economy. The sensational headlines may also motivate thousands of underwater or unemployed homeowners to default on their loans, since the once-obvious connection between not paying your mortgage and losing your home seems to be increasingly fuzzy.
The real agenda here, in my opinion, is a shakedown against the banks by trial attorneys, who have spotted a weakness in the system and who know that no one has deeper pockets right now than the banking industry (thank you, taxpayers).
The real agenda here, in my opinion, is a shakedown against the banks by trial attorneys, who have spotted a weakness in the system and who know that no one has deeper pockets right now than the banking industry (thank you, taxpayers).
This is a very negative development because really, there are only two things driving the housing market today, and that’s buyers in search of quality and/or value. And foreclosures represent value. Take that out of the equation, and what do you have left?
Let's think one step down the line on this so you can see the kind of chaos we are talking about here... let's say that five years ago, you took out a Visa card with Washington Mutual. WaMu goes under, the accounts get transferred to Chase, and today you owe $21,000 on that card. You don't deny that you spent the money, or that you have a legal obligation to pay it back.
But using the same logic that's bottling up the foreclosure process, you demand that Chase supply the actual written agreement you signed when you took out the card so you know they are in fact the correct creditor. Could they do that? What if they can't??
That's why this is a mess. We are all for ensuring that there is "process" and that fairness be a part of this discussion. But really, in my opinion, this is just a massive shakedown that won't ultimately save any homeowners from wrongful evictions.
It's about the fact banks have deep pockets (courtesy of taxpayer bailouts and government-arranged mergers) and that certain trial attorneys see an opportunity to make a killing. A killing which could further delay any recovery in the housing market and in the larger economy.
