Foreclosure Moratorium

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As Seen in the Naples Daily News and Bonita Daily News

At the time I’m writing this article, there are at least three major lenders who have ordered a stoppage of foreclosures in 23 different states ; Bank of America, Allied Financial, and JP Morgan Chase.   This is happening due to several reasons, including reports of banks foreclosing on properties where the owner had been paying their mortgages on time and shouldn’t have been foreclosed on.   This is downright wrong, and I feel deeply for all the homeowners to whom this has happened.

It has caused complications in title as to who actually owns the home.  On a lot of these foreclosures the paperwork is not correct. Some banks have even used false notarizations.  It’s possible they don’t even know the real owners of the mortgages.  Picture a person sitting in a cubical in some far away state, with stacks and stacks of foreclosure filings on their desk, then multiple that by a thousand or so. That’s a lot of paperwork.  It’s no surprise the banks are so unorganized and don’t know what they can foreclose and who owns what.

If all the banks follow suit with the moratorium or are forced to stop foreclosing by the “powers that be” until the mess is cleaned up, do you think this is a good or bad thing?  It’s interesting to hear all the different responses from people on this issue.  A lot of people think it’s a great thing; to literally bring everything to a halt and let the “normal” homes go for sale without the foreclosures on the market.

I, on the other hand, strongly disagree.  It’s like trying to dam a river full of toxic sludge.  For a while the river may run clear and clean, but all that sludge is building and building into one of the most toxic, foul rivers you could imagine on the other side of the dam.  When that dam breaks- look out!- everything will be covered in sludge.

The only way out of this mess is to go through it. We can’t avoid it and it definitely can’t be stopped.  That’s the worst solution.  Slowing down the foreclosures and stopping those where the troubles lie would make much more sense.  But let the river keep flowing.  If we stop the flow, it means less supply and some people think prices will rise if there is fewer inventory on the market.  On the surface that makes sense, but the reality is that this moratorium is all over the media and news.  Buyers and sellers know what a mess it is out there.  So really what it is doing is putting more and more buyers on the sidelines – waiting for that river of sludge to build – knowing that one day it will break and when it does they’ll get back in the game and it’ll be another “bubble” burst in our already fragile market.

Of course the banks need to get their acts together and work through this mess, but a knee-jerk reaction like this isn’t going to solve much.  Until these foreclosures and short sales are gone from our market (and not hiding upriver), it will not be a normal market and it surely won’t behave like one.  It’s bad enough that the banks have shadow inventory that they’ve been hanging onto, but at least they were strategically placing those homes on the market for new buyers to stimulate the economy and revitalize neighborhoods and homes.

While banks try to figure out what they should have known from the get –go, there is a gluttony of homes sitting on the market rotting away, growing in damages due to lack of care and deteriorating communities, plus home owners associations are not getting paid due to vacant homes and a lack of owners. How is this going to help the situation?

If you are a buyer I would HIGHLY recommend hiring a real estate attorney before purchasing a home especially a foreclosure or even before getting the contract to buy from the bank, to make sure the title will be clear for you to avoid future problems.  As always, happy hunting and watch the sludge…..

 

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