What's going on with US foreclosures ?

Current economic conditions (the continuing fallout of the GFC, the credit crisis, lower property values and increasing interest rates) have combined to cause more mortgage defaults and foreclosures.  And, that's especially so in the USA.


But, at the same time there's been a crisis relating to US foreclosures that has led to most US banks to stop foreclosures until it's resolved.


So, what is the crisis, what's the impact and how did it happen ? 


It's been discovered that the relatively strict procedures that need to be followed and the complete paper trail necessary in foreclosures was being shortcut by banks and their lawyers ... putting the lawfulness of the foreclosure at risk and making it challengeable.  So, banks have decided to hold foreclosures whilst they investigate the processes, correct them and/or make further legal challenges.


But the halt on foreclosure has a massive financial impact (on everyone) when you consider that estimates are that up to US$154 bilion in mortgages could be affected by the delays (source - Laurie Goodman, senior managing director at mortgage-bond trader Amherst Securities Group LP in New York).


What's ironic about this situation is that a multi billion dollar problem was caused by a US$75,000 mortgage.  And, it happened like this.


Nicolle Bradbury bought a tiny little house in Denmark (near the New Hampshire border) for US$75,000 about 7 years ago.  A .couple of years ago, Nicole lost her job and couldn't pay the $474 monthly mortgage payments so the bank (GMAC) started foreclosure action. 


But when the paperwork landed in front of lawyer Thomas Cox things became very non-routine.  Thomas was working at a nonproift legal centre but had worked in the foreclosure industry for years before that - helping to foreclose on homes that small business owners had put up as collateral.


On behalf of Nicole, he succeeded in getting the deposition of a GMAC ‘robo-signer’ who admitted that he didn’t read through the 400 foreclosures he signed each day including Nicole's.  So he argued in the foreclosure case to the Court that - 


'When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.'


The Court rejected GMAC’s request for a foreclosure and said that even when given the chance to file amended documents, GMAC still didn’t even include the actual street address of the house.


And, (surprise surprise) US lawyers are now looking at this case as a model for further litigation.


So, US banks need to check and change their foreclosure processes and probably re-do existing foreclosures to try and avoid the same arguments and outcomes.  It's a big problem that the finance sector, the real estate market and home owners don't really need.


Whether or not we have the same problems in Australia is not clear but I guess many lawyers will check this option now if they can (I would) when representing defaulting home owners.


See you in the foreclosure Courts ... arguing your case.





Francesco ...