By: Lance T. Denha, Esq., Of Counsel
The housing market has shown some promising signs of late, but a fresh batch of foreclosure data offers a reminder that any recovery from the housing bust will likely be slow, spotty and painful. RealtyTrac, which publishes the largest database of foreclosure, auction and bank owned homes, recently reported that foreclosure filings rose by 9 percent in May from a month earlier to a nationwide total of 205,990 properties that were subject to default notices, scheduled auctions or bank repossessions.
The reasoning behind this spike, according to insiders in the industry appears to be because lenders are finally getting around to foreclosing on the backlog of homes which were halted as a result of criticism and audits by the several Attorney Generals throughout the country who were reviewing the manner in which the foreclosure process was being handled by lenders and their attorneys. As previously blogged, the “robo-signing” scandal, in which foreclosure documents were signed without property reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.
In addition, recent sales data suggests that not all homes with foreclosure filings will result in the bank taking the property. Despite the uptick in foreclosure filings, many lenders may work with homeowners to avoid a foreclosure. What appears to be happening is that the settlements and modifications being received by homeowners are not long term solutions. Continuous efforts are being made by both lenders and homeowners to avoid foreclosure and pursue all loss mitigation options in an effort to prevent foreclosures. These types of options include loan modification, short sales, deed in lieu, forbearance agreements, etc. As a result, the banks will not take possession of the homes in the event another loss mitigation option is available to homeowner. Homeowners will be able to remain in the home or it will be sold to a third party buyer with the consent of the lender. Regardless of whether another loss mitigation option is taken as an alternative, some borrowers still lose their home. Why? Some borrowers cannot, for a number of reasons, comply with the terms of the compromised deal they negotiated.
Notwithstanding the above, if a homeowner feels aggrieved, they can continue to fight against such wrongdoing in an effort to protect their interest. Lenders must act in good faith and not create obstructions for the borrowers in the process of curing any defaults. Many defenses can be made by the homeowner to prevent their bank from forcing a short sale or auction as well as any repossession process which may have been initiated by their lender. A legal analysis and review of loan documentation, chain of title and other items could result in challenging the ownership of lenders attempting to foreclose on a homeowner’s rights in the property.