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President’s Corner Understanding the finer points of the foreclosure ‘freeze’

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Melanie Pennino

Posted: Friday, October 15, 2010 11:26 am

There has been story after story in the last few weeks regarding the suspension of foreclosures by several lenders. The following is some information issued by the National Association of Realtors. I found it helpful in understanding the basics of this issue and what ramifications it may have for those dealing with a foreclosure property.

One point to keep in mind is banks for unilaterally doing this nationwide and there is no federal policy involved.

In September and October 2010, several lenders suspended foreclosures in two dozen states due to questions about whether foreclosures were being processed consistent with applicable state law requirements. Concerns are being raised by state and federal elected officials, as well as consumer and fair housing groups, about the validity of ownership of mortgages that have been securitized and resold. At the center of the controversy is Mortgage Electronic Registration Systems (MERS). This firm is responsible for electronically tracking the transfer of assignment of mortgages.  Class-action suits are being brought against MERS alleging that the use of the system circumvents state laws.

On Oct. 1, 2010, Fannie Mae and Freddie Mac released statements regarding servicer compliance with foreclosure processing of Fannie and Freddie loans. In the releases, both organizations reiterated that servicers must comply with applicable state laws governing foreclosures. Although nearly all of the foreclosures in question are expected to be fixed eventually, the current situation is creating difficulties and a new hurdle to the recovery of the housing and mortgage markets.  

Some Realtors are reporting that upcoming sales have been delayed indefinitely or cancelled, to the detriment of all involved. Additionally, homes on the market without clear title will make sales much more difficult. While banking executives focus their attention on this problem, it is possible that servicers may be somewhat more receptive to approving loan modifications and short sales, since they avoid the foreclosure procedural problems altogether.

Here are some points to note:

There’s no way of knowing what percentage of foreclosures that were improperly processed were, in fact, inappropriate or wrongly taken. The assumption is that for most of them, this may be only a technicality and that the property ultimately would have been repossessed.

For owners who believe their home was wrongly foreclosed, they may wish to contact a real estate attorney to investigate the possibility of a property claim. However, that could prove costly and time consuming — regulations vary by state.

For banks, it may make sense to modify loans or agree to short sales to expedite disposal of inventory.

For buyers, the assumption is that listed foreclosures come with clear property title but they should discuss any necessary contract contingency with  their attorney. Foreclosures in limbo are likely to be withdrawn from the market.

The experts in the Realtor community will be monitoring this issue and will keep us informed as to any changes or updates.

Melanie Pennino is the president of the Lodi Association of Realtors.  You can reach her at