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Foreclosure Flaws
October 19th, 2010 11:11 AM

The struggling local housing market has been shaken up once again with the announcement recently that foreclosures would be stopped and all bank owned homes withdrawn from the market. This was a direct result of reports that the process was not being handled properly and the title obtained by foreclosure may have been tainted. The fast-paced banking system that aims for maximized profits has collided with the much slower courts and legal system which demand due process.

Residential real estate has been on this collision course since the boom years of 2004 to 2006 when lower standards for loans and lax controls involving foreclosures were based on the premise that home prices would never fall and therefore a large portfolio of loans would not go bad at the same time. Due to the volume that did go bad, financial institutions developed electronic processing and “robo-signers” to speed up procedures whereas the legal system for real estate law relies on physical paperwork filed by individuals. Bank employees who approved hundreds of foreclosure documents daily never even reviewed them and some mortgages that were bundled and sold to investors were lacking required legal documents. It may take months in this halting of foreclosures to track down the proper certificates and re-file the necessary paperwork.

What does this mean to our local real estate economy? For now, the foreclosure system will operate in fits and starts. Bank of America just announced recently that they plan to resume foreclosure proceedings in November. But this could still be a positive for many homeowners.

In the short term, with many bank owned properties off the market, it will give non-distressed sellers a fighting chance to secure a contract on their homes. For those properties priced correctly and competitively, buyers will still obtain great bargains not seen since the beginning of this decade. Sellers are still motivated and many have had no fighting chance with the bank owned homes competing against them. Depending on the length of time it takes for most foreclosures to go back on the market, there may even be a slight increase in home prices.

For those homeowners already struggling against foreclosure, it will allow more time to examine available options or alternatives. It will allow more time for legal advice, direction and representation. It will give some the hope they need.

However, in the long term, it is only a matter of time before the dam breaks and the flood of foreclosures once again hits the market. It may push distressed real estate well into 2012 when we were hoping to be well on our way to a real estate recovery. Real estate has had its share of ripples and certainly a bumpy ride, but sooner or later, “this too shall pass.”


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Posted by Barbara Doeringer on October 19th, 2010 11:11 AMPost a Comment

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