bankruptcy and foreclosure
The big banks are starting to resume foreclosures in a number of states. If you’re not a bankruptcy attorney and haven’t been closely following the story, here’s a little background. The largest banks and mortgage servicers called a moratorium on foreclosures over the last couple of weeks. The reason was that in the mad scramble to securitize and sell mortgages in the secondary market, the paperwork that was supposed to document the sales and transfers of the mortgages either got lost or misplaced.
So now that the foreclosure freeze has been lifted, you might be thinking that the banks and loan servicers must have worked very quickly to get the whole mess cleaned up in just a couple of weeks. That would be wrong.
The other day I was discussing the current state of disarray with an old law school friend of mine who went to work for a large Manhattan law firm that did a lot of mortgage securitization work. (Yes, he was unfortunate enough to have been laid off from that job a little while back.) He told me that when the deals were flying fast and furious that people would just put loan documents wherever they could find room. Very few people knew where all the paperwork for a particular loan could be found. On top of that, once the securitization market more or less evaporated in 2008, a lot of the people managing the paperwork were let go. The end result, of course, was that no one knew how the loan documents were organized or where they could be found.
That has not changed in the last two weeks. In my opinion as an ex-mortgage financial analyst, is that the banks have run the numbers and determined that getting slapped on the wrist a few times by bankruptcy or state court judges costs them less than the amount they’re losing right now by not foreclosing. They probably figure (and I think they’re right) that not that many borrowers will choose to engage them in full-scale litigation over their loan paperwork.
Only time will tell, but there is at least one long-term side effect of this that might come back to haunt the banks and loan servicers. When they go to sell the foreclosed homes, they may find that title insurance will either be prohibitively expensive or outright unavailable (there are some reports that this is starting to happen already). You can be certain that every buyer of a foreclosed property is going to insist that the bank provides title insurance. In the opinion of this bankruptcy attorney, the train wreck will continue.
John Fox is a bankruptcy attorney and the founder of The Fox Law Office. The Fox Law Office is located in San Jose, California, and focuses on representing consumers facing bankruptcy because of unmanageable real estate debt.
Long Island Bankruptcy Lawyers & Foreclosure Attorneys – The Law Offices of Kyle Norton PC
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