by Dan Krell ©2010
The current lender spawned foreclosure crisis is complex and could have far reaching consequences. As additional allegations of foreclosure fraud are brought about, a wider net that appears to be entangling lenders, attorneys, and others involved in the foreclosure process; some are now speculating that we can undergo something similar to what we experienced during the fall of 2008 when the financial crisis hit its peak (with the failure of Lehman Brothers) – if the worst case scenario is realized. The next several months will reveal how the mortgage industry will handle the legal aspects of the foreclosure process as well as how the court system and home owners respond to lenders. Of course, it might not turn out as bad they say either.
To understand the legal scope of the problem, you need to talk legal experts. And that’s just what Citigroup analyst Josh Levin did when he hosted a conference call (now made famous by bloggers and a few news outlets). Underscoring the impact of this crisis, the conference featured Georgetown Law Associate Professor, Adam Levitin. Professor Levitin’s comments were the focus of an article in a Wall Street Journal blog by Dawn Wotapka (“Are We Headed for Housing Armageddon?”). The professor’s comments highlighted three scenarios that are tantamount to the good, the bad, and the ugly.
The good situation occurs if the alleged foreclosure processing irregularities are dealt with promptly and does not impact the foreclosure process going forward. Even in the best case scenario, many in the industry agree that the housing recovery will be delayed for at least one to two years.
The bad situation occurs if the foreclosure process gets bogged down in the courts, prolonging the foreclosure process in some cases for years, adding additional angst to the economy and consumer confidence.
The ugly situation occurs if allegations and investigations reveal widespread problems within the mortgage industry and cause title insurers to begin declining coverage as well as some claims. This would have a freezing effect on the greater part of the housing market and would cause what Professor Levitin called “Housing Armageddon.”
The state of the problem at present appears to be a little of all three scenarios; however, we creep closer to the ugly as new revelations occur. At first, foreclosure processing fraud was given most of the attention, as allegations are prompting investigations of lenders, law firms and others involved in foreclosure processing.
Attention is shifting to “wet ink” signatures. Lenders are being pressed to provide the “wet ink” signature notes (which is the mortgage note with the actual pen signed signature as opposed to a copy) showing ownership of the mortgage. The fact that an increasing number of foreclosure cases are being dismissed because the lack of “wet ink” signature notes, has more home owners challenging lenders; and some home owners are questioning the validity of their mortgage servicing, which may lead to home owners challenging the payment of the mortgage.
So, how does this affect you? Surely, an increased glut of distressed homes sitting idle will further affect home values. Additionally, communities will suffer due to the suppressed collection of property taxes and HOA dues on those empty homes.
If you are in the process of being foreclosed, or if you have questions about your mortgage documents and/or loan servicing, you should consult an attorney.
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 18, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.