2011 was supposed to be the year that the housing market finally bottomed out and the foreclosure “tsunami” worked its way through the banking system and into the open market. It was supposed to be a year of new beginnings. However, thanks to massive uncertainty in the lending industry about paperwork and procedures, it looks like the shadow market may remain just that far longer than experts and analysts originally predicted.
Nationwide, foreclosure filings fell 17 percent (year over year) in January 2011, with only 260,000 foreclosures being filed that month. While that might sound like a good thing, in reality it is indicative not necessarily of an improvement in homeowners’ ability to pay, but rather lenders opting to “put the brakes” on their foreclosure systems while they investigate and review their own processes for faulty paperwork, robo-signers and other liabilities.
Should the lenders stall the process? If they think that they have a problem, then absolutely. If they are wrongfully foreclosing, then the flaw in the system must be repaired or lenders not only face ethical issues but also in some states, like Florida, they could face criminal charges. Note: In Florida foreclosure filings fell 54 percent in light of this new consideration.
Unfortunately, this slowdown may not actually be a sign of improvement but rather just a symptom of coming market doldrums, say experts. In reality, however, no one really knows what is coming next. Pending legislation in many states could change the foreclosure process permanently, adding in mandatory negotiation periods that might make loan modifications more “user-friendly” or that could provide homeowners with longer windows of opportunity to sell homes, negotiate short sales or finagle other foreclosure options.
How do you think that this situation should be handled? How can the massive volume of legal issues stemming from ForeclosureGate be realistically resolved in a way that helps rather than hinders housing recovery?
Thank you for reading the Bryan Ellis Real Estate Letter!
Your comments and questions are welcomed below.