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The news is full of stories about improperly done foreclosures. If you’re thinking about buying a home that’s been through foreclosure — or if you already own one — the reports might have you wondering: What does this mean to me?
Three lenders so far — JPMorgan Chase, GMAC Mortgage and Bank of America — have stopped foreclosing on homes in 23 states while they sort out alleged problems in the way they are processing foreclosures. Wells Fargo just acknowledged that one of its executives only verified dates on the nearly 150 documents he signed daily, but the bank has not decided to halt foreclosures.
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Depositions in court cases brought by foreclosed homeowners reveal that clerks in some companies routinely signed court documents swearing they’d reviewed individual foreclosure cases when in fact they hadn’t. A title company, Old Republic Title Insurance Co., has stopped insuring titles on sales involving these lenders.
We asked real-estate attorneys and real-estate industry experts whether consumers should worry, if they should buy foreclosed homes and what to do if they already own one.
It’s anybody’s guess, at this point, how widespread the problems are and how they’ll affect the real-estate market.
“The assumption is that for most of (the homes), this may be only a technicality and that the property ultimately would have been repossessed,” says Walter Molony, a spokesman for the National Association of Realtors.
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Glenn Kelman, CEO of Redfin, a Seattle-based online real-estate brokerage, says, “My guess is that the backlog of foreclosed homes will increase, limiting supply, and that demand will mostly shift to investors. The whole timing of the housing-market recovery will likely be delayed.”
An iffy time for buyers
If you purchased a home that was seized and resold improperly, you might be asking yourself, “Do I really own this home? Or are the previous owners still technically the owners, even though I’m making the payments?”
It makes sense to worry, experts say. But the likelihood that you’d lose a home on such a technicality is slim, says Stuart F. Ebby, a real-estate attorney and principal at the Philadelphia firm of Hangley, Aronchick, Segal & Pudlin.
“People who have bought a home through a foreclosure — if they have a title insurance policy, which I presume they would have — they should be OK,” Ebby says.
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“The title insurance insures the purchaser that all of the technical aspects have been done properly. If someone comes along later and says, ‘Your title to this home is flawed and something in the foreclosure was not done right,’ they’d have a perfect claim against the title company,” he says.
Most homebuyers get title insurance when they purchase a property. Policies use a standard form, issued by the American Land Title Association, the organization of title insurers. Unless exceptions are noted in your policy, which is rare, Ebby says, the insurance covers any costs of defending your claim to the home and you’d be reimbursed for the value of the home if someone were to prove you’re not the legitimate owner.
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Title companies may have to go to court in some cases, an industry spokesman recently acknowledged. But even if they lose, the homeowners won’t be on the hook, Kurt Pfotenhauer, the title association’s CEO, said in a statement. In any case, he said, “It is unlikely that a court will take property from an innocent current homeowner and return it to a previous homeowner who failed to make payments on the loan subject to the foreclosure.”
