Good Morning Group,
With major banks stopping foclosures throughout the US. What impact does this have on the Real Estate Market? How does this affect, REO’s, Short sales? In addition, how does this affect us as investors? Is this a benefit or a negative impact? Just wanna know your thoughts.
Thanks
It just prolongs things. Foreclosures will hit the market and the halted ones will have to work their way through the system. We have multiple deals going and are finding plenty of worthy prospects to offer on. Just keep working hard.
One of the things that may shake out of this valid/not valid foreclosure mess.
The New York Times
When home buyers and people refinancing their mortgages first see the itemized estimate for all the closing costs and fees, the largest number is often for title insurance.
This moment is often profoundly irritating, mysterious and rushed — just like so much of the home-buying process. Lenders require buyers to have title insurance, but buyers are often not sure who picked the insurance company. And the buyers are so exhausted by the gauntlet they’ve already run that they’re not interested in spending any time learning more about the policies and shopping around for a better one.
Besides, does anyone actually know people who have had to collect on title insurance? It ultimately feels like a tax — an extortionate one at that — and not a protective measure.
But all of the sudden, the importance of title insurance is becoming crystal-clear. In recent weeks, big lenders like GMAC Mortgage [GMA 22.33 -0.70 (-3.04%) ], JPMorgan Chase [JPM 37.15 -1.57 (-4.05%) ] and Bank of America [BAC 11.98 -0.62 (-4.92%) ] have halted many or all of their foreclosure proceedings in the wake of allegations of sloppiness, shortcuts or worse. And a potential nightmare situation has emerged that has spooked not only homeowners but lawyers, title insurance companies and their investors.
What would happen if scores of people who had lost their homes to foreclosure somehow persuaded a judge to overturn the proceedings? Could they somehow win back the rights to their homes, free and clear of any mortgage? But they may not be able to simply move back into their home at that point. Banks, after all, have turned around and sold some of those foreclosed homes to nice young families reaching out for a bit of the American dream. Would they simply be put out on the street? And then what?
The answer to that last question may depend on whether those new homeowners have title insurance, because people who buy a home without a mortgage can choose to go without a policy.
Title insurance covers you in case people turn up months or years after you buy your home saying that they, in fact, are the rightful owners of the house or the land, or at least had a stake in the transaction. (The insurance may cover you in other instances as well, relating to easements and other matters, but we’ll leave those aside for now.)
The insurance companies or their agents begin any transaction by running a title search, sifting through government filings related to the property. They do this before you buy a home or refinance your mortgage to help sort out any problems ahead of time and to reduce the risk of your filing a claim later.
But sometimes they miss things, and new issues can arise later.
For instance, the person doing the title search may not notice that a home equity loan is still outstanding or that a contracting firm filed a lien against the owner years ago. That could create problems for you later, when you try to sell the home.
Then there are the psychodramas that can ensue. The previous owner’s long-lost heirs or a previously unknown love child could show up, saying that they never agreed to the sale of the property. Or perhaps there was fraud against a seller who was elderly or had a mental disability, or forgery of an estranged spouse’s signature. It’s rare, but it happens, and when it does, your title insurance company is supposed to provide legal counsel or settle with whomever is making a claim.
Title insurance companies would like you believe that they are the good guys standing behind you. After all, you are the customer who owns the policy.
In fact, many of the title insurance companies are more concerned about the real estate agents, lawyers and lenders who can steer business their way. The title insurance companies are well aware that most people do not shop around for title insurance, even though it’s possible to do so — say through a Web site like entitledirect.com.
While the title insurers are not supposed to kick back money directly to companies or brokers that send business their way, various government investigations over the years have turned up all sorts of cozy dealings that make you shake your head in disgust.
But since you have to buy the insurance if you need a mortgage, there is not much you can do except hold your nose.
That’s what John Kovalick did in January when he bought a foreclosed house in Deltona, Fla., for $102,000 from Deutsche Bank. But in recent weeks, he’s seen the headlines about other banks halting foreclosures and wondered whether something might have gone wrong with the foreclosure on his new house. A spokesman for Deutsche Bank declined comment.
Mr. Kovalick is not the only one pondering what could go wrong. While the banks were pressing the pause button on many foreclosures, some title insurers were growing concerned as well.
On Oct. 1, Old Republic National Title Insurance Company released a notice forbidding any agents or employees to issue new policies on homes that had been recently foreclosed by GMAC Mortgage or Chase.
Clearly, the title insurer was also worried about a situation in which untold numbers of former homeowners have their foreclosures overturned. At that point, those individuals might claim the right to take back their old homes, but they’d also be responsible for, say, a $400,000 loan on a home that is worth half that.
So what would happen next? The banks that foreclosed might start the process over again. At that point, lawyers for the people who had been foreclosed upon might take the next logical step and try to show that the banks never had the documents to prove ownership of the mortgage in the first place. The banks might settle at that point, writing checks to everyone who had gone through a disputed foreclosure in exchange for each of them giving up the title.
But if banks did not settle, or the evicted homeowners refused to settle and fought on and won, they might end up owning their homes once again and not owing the bank either.
Or banks might agree to slice a big chunk off the remaining balance in exchange for a release from any liability for the errors it made.
At that point — and again, this is what Old Republic and investors in other title insurers fear — those homeowners might actually want to move back in. But some foreclosed homes were sold by the banks to others who now live there. And those new residents would have big, fat title insurance claims if their predecessors ever turned up at their doorsteps, proclaimed them trespassers and told them to leave.
“All of these Joe Schmos who did everything legally would then be in the middle of it, too,” said Mr. Kovalick, who manages an auto repair shop and is now hoping not to be one of those Schmos.
“Now, you’d have two total disasters,” he said. “How would you like to be the judge to get that first case?”
While homeowners like Mr. Kovalick may have title insurance, it generally covers them only for the purchase price of the home. When you buy a home out of foreclosure, however, it often needs a lot of work. “If I bought it at $200,000 and it’s a steal but I had to gut it and sink $100,000 more in, my recovery is limited if there is a problem,” said Matthew Weidner, a lawyer in St. Petersburg, Fla.
Indeed, this possibility has occurred to Mr. Kovalick, who has plans to put an addition on his home and is asking how he could extract that investment if someone ever turned up on his doorstep and asked him to leave. “What do I do, take the paint off the walls and the custom blinds off the windows?”
Chances are, it will not come to that. After all, title insurers could settle with the previous residents, allowing them to walk away with a big check to restart their lives elsewhere.
Still, for anyone considering buying a bargain home out of foreclosure anytime soon, consider asking your title insurer if any special riders are available that can cover appreciation on your home in the event of a total loss.
That said, if you can possibly help it, stay away from foreclosed homes until the scene shakes out a little bit.
Some people will undoubtedly make a fortune investing in these properties in the next few months. But if your down payment represents most of what you have in the world, it’s hard to justify betting it all on a situation like this one.
The business is now better then ever. This halt is based on foreclousres that were not legal. SO THAT BEING SAID…
Make sure all your deals have the proper paperwork. Ask the Lender to provide all doc’s to support the Foreclosure… If they cant you got a better faster stronger deal then any Short Sale. The key is when the market changes change with it… Not time to do Short Sales right now. Its time for other plans! Good Luck to all and happy investing.
It is possible that even those who didn’t buy title insurance will have recourse against the banks they bought from if the foreclosure was invalid. Any case they may have is likely to be predicated upon the specific type of deed they received from the bank and the guarantees in that deed, expressed or implied. However, I suspect fighting the bank and collecting will be a long and costly process. Banks are good at long and costly.
jmd_forest
With the amount of foreclosures coming on the market this should help the market. Since the demand is low the last thing we need is more inventory.
Not to mention Mortgage Insurance has paid out on deals that they didn’t have to. So they will be going back after the lenders as well. TO collect that money. This is really a paperwork issue on 99% of these files this is where Produce the note comes to play from what I am being taught. Check out this site and let me know your thoughts on it. www.shortsalesaredying.com Really interesting new approach I bought into this and it is really different. And it works no this is not a sales pitch just wanting others thoughts.
Waiting for things to start hitting the market again in my area as well. Will be interesting to see how much inventory is being held.
I read an article last week that this is actually driving up short sales in certain areas of hte country. I find it insane the banks weren’t doing their due diligence on the paperwork being submitted and just goes to show how understaffed they were, despite playing the appearance that they were improving their efficiencies within their loss mit departments.