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FREEZE ON FORECLOSURES? POTENTIAL LONG-TERM CONSEQUENCES FOR HOUSING MARKET RECOVERY!

Depending on where you live in Chicago, Foreclosures and Short Sale Properties could make up as many as four out of ten Real Estate Transactions today.  Unemployment locally, and across the nation, remains high.  Credit standards remain tight.  And thousands of homeowners have long given up on attempting to keep their house payments current.

In IL, completing the process of a lender acquiring a residential property by means of foreclosure can often take nine months to a year, sometimes longer.  But now, alleged shady processing practices among many of the largest banks in the U.S. have put thousands of forecloses on hold.  Indeed, as reported by AP Writer Michelle Conlin, and seen in the Chicago Tribune,  big names under question for possible sloppy work include JP Morgan Chase, GMAC, PNC Bank, and the Bank of America.

Indeed, B of A has suspended foreclosures in all 50 states over allegations of forged documents, slipshod title work, and vanishing trails of required paperwork.

During the moratorium, the lenders will have to review thousands of foreclosures to make sure proper legal procedures have been followed.  In states across the country (not in IL yet, however), attorneys general and other lawyers have filed class action suits against mortgage lenders, alleging mass mortgage fraud.

On the surface, distressed homeowners could view the foreclosure suspension as a bit of a reprieve.  They would have more time to live in their homes before having to move on.  If they elect not to pay their home mortgages in the meanwhile, they could use their saved money to pay other debt they may have accrued.

For potential home sellers, fewer foreclosures on the market now translate to fewer fire-sale-priced competitors.  This might actually, short term, stabilize home prices in some areas, struggling with multi-year price declines, on average.

Longer-term implications are a bit more concerning, however.

These processing errors will eventually be corrected.  The result could be a flood of foreclosed properties, at reduced prices, flooding the market months from now.  Some experts fear this can stymie an already-fragile economic recovery, and keep home prices low for an extended period of time.

Banks insist that initiated foreclosure proceedings were brought only against those homeowners legitimately behind in their house payments.  Even if that is true, however, if the actual foreclosure procedures are eventually deemed fraudulent, these processed foreclosures would have to be restarted again, from scratch.

One possible victim here would be those now purchasing foreclosed, bank-owned properties at a deep discount.  Some Title Insurance Companies, including Stewart Title and Old Republic National, have stopped writing title insurance for properties held by banks thought to have engaged in sloppy processing practices.  Without clear title, properties cannot be sold to potential homebuyers or investors. 

Indeed, on Orlando FL Real Estate Agent points out that 40 of her over 200 listed foreclosed properties - 20% - are impacted by the Foreclosure Freeze.  Of those, 12 are under contract, but are unable to close until their foreclosure processes are re-investigated.

Please see our post today via BlogChicagoHomes.com.

DEAN & DEAN'S TEAM CHICAGO

Comment balloon 7 commentsDean Moss • October 12 2010 08:20AM

Comments

I am still wondering how this is going to affect our market here in Maryland.  Somehow, this doesn't surprise me, after all the credit crisis we are in was brought on by sloppy loan writing, now we are seeing the results of sloppy foreclosing. 

Posted by June Piper-Brandon, Piecing Dreams One Home at a Time (Remax New Beginnings ) almost 8 years ago

They need time to sort things up while families suffer. . .maybe after the elections. .

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) almost 8 years ago

You're right on target explaining the long term consequences. I'm shocked at the number of blogs I've read that describe possible short term benefits, while ignoring the reality that there will have to be a continuation of the foreclosure process later, not to mention the consequences of litigating an endless number of lawsuits.

Posted by Jon Budish (Resident Realty) almost 8 years ago

To me this decision is only delaying the inevitable. These families will enjoy one more Holiday Season in their home. I called up someone selling a boat. Found out he was behind in payments. He did not know his foreclosure date at 10/7. Wow

Posted by Harry F. D'Elia, Investor , Mentor, GRI, Radio, CIPS, REOs, ABR (Real Estate and Beyond, LLC) almost 8 years ago

This is a troubling development for sure. But in the end the banks are not modifying enough loans. If they did this wI believe we would not have as many foreclosures hence reducing the burden

Posted by Charlie Ragonesi, Homes - Big Canoe, Jasper, North Georgia Pros (AllMountainRealty.com) almost 8 years ago

With just 36 days left in 2010, Zoey the Cool Cat and I just wanted to stop by and wish you a very Happy Thanksgiving. Hope it’s a great one, with lots of fun and food with family and friends!

Happy Thanksgiving!

Posted by Not a real person almost 8 years ago

yes they look so nice but Foreclosures are such tough on to stomach.

Posted by Paul Gapski, 619-504-8999,#1 Resource SD Relo (Berkshire Hathaway / Prudential Ca Realty) almost 7 years ago

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