Over the past 5 days, Bank of America, GMAC and JP Morgan Chase, have announced that they are halting all of their foreclosures. These banks have stated that they are going to stop all pending foreclosures and are going to go back and start looking at the foreclosures that have already taken place for discrepancies, fraud and other inconsistencies in their foreclosure process.
There has been a significant amount of articles written on this topic recently. You can view some of them here:
2. Bank of America and Chase implicated in foreclosure ‘robo-signing’ scandal
What does this mean for me?
Here is my thinking…this is NOT a good thing for a lot of people involved. The people who bought foreclosed homes from the banks (known as REO’s – Real Estate Owned) will have to defend their purchases. The banks that lent money to these borrowers will have to defend themselves. The title companies that insured these properties will have to defend themselves. All of this is expensive and will clog the courts.
For the people whose homes were foreclosed upon, if it is determined that they were foreclosed upon “wrongly”, now what? Lawsuit. Suing the bank can be an expensive proposition. In most states, there is no right to give them back their home. (For good reason, the people who bought the foreclosed home had the right to buy it. They cannot get thrown out of a home that they rightfully purchased). Each of these banks is going to have more lawsuits against them than they can handle.
However, for the people who are in pending foreclosure may have a silver lining to this situation. While the banks may not proceed with the foreclosure at this time, they will eventually. So the banks may be much more willing to grant loan modifications. Really grant loan modifications. Not just putting people on trial modifications indefinitely.
This is not a free pass to borrowers who are struggling. Once the banks get through this, they will begin the foreclosure process again and probably more efficiently. Applying for a loan modification now may be the best plan. If borrowers take advantage of this situation, there may be a lot of people who get to keep their homes and have a much more affordable payment.
My paralegal and I were just talking about this situation and what we think is going to happen. She and I realized that last week, our law firm had over 6 permanent modifications come through for clients from 2 of these 3 banks and 5 more trial modifications. That made me wonder…are the banks going to process the modifications and approve modifications more readily?
Only time will tell. What I can tell you is that now is the time to apply for a loan modification.