Whether it is the lender, real estate agent or the title company, every player in the real estate market has asked themselves the same question in the last month: How am I at risk when it comes to the halt in foreclosures?
Here is quick overview of what recently went down that led to everyone asking that same question:
Bank of America and other mortgage companies have been under pressure to review their paperwork after employees and contractors said in sworn depositions that because of the enormous volume, they hadn't had time to read the documents, much less check them for accuracy. A Bank of America executive said in a February deposition in Massachusetts that she signed as many as 8,000 foreclosure documents a month without reviewing them. The deposition is similar to others taken from document processors at J.P. Morgan Chase and Ally Financial. The statements were taken by lawyers for homeowners contesting the seizure of their homes. Once this information was caught on by the general public, major lenders such as Bank of America, GMAC, and J.P. Morgan Chase all put moratoriums on foreclosures until their review processes could be completed.
By the end of October, we saw lenders already taking action, determined to get back to business even with state attorney generals investigating their foreclosure practices. For example, Wells Fargo announced that it was planning to submit supplemental affidavits for 55,000 foreclosures pending in the 23 states with judicial review of foreclosure proceedings. Bank of America already reopened over 100,000 foreclosure actions, stating that it had found no major problems in its foreclosure procedures. GMAC Mortgage also moved forward with an unspecified number of foreclosures.
Attorneys for both title companies and real estate brokers have been looking closely into what defenses are available to assure the continued ownership of the property. Some of the best possible defenses include:
- The alleged deficiency in the lender’s foreclosure process may not have harmed the previous owner.
- The foreclosure judgment is a final court order. It is too late for an objection on a technicality of the foreclosure process to be raised by the previous owner.
- Because the new owner purchased in good faith, he or she may be protected under the law.
Fidelity National Title, the underwriter for Republic Title, has already entered into a master indemnity agreement with Bank of America and is working on similar agreements with other lenders. As for RE/MAX Showcase, please make sure that you have your clients sign the Addendum/Disclaimer for all REO/Foreclosure deals. I know the last thing you want is another document that must be explained to your client, but that piece of paper may be a big help to you months after the deal has closed.
Remember, you can’t fix what happened in the past, but you can learn from it and take measures to minimize your liability in future transactions.