You may have heard the news last week that several major banks decided once again to put a moratorium on foreclosures. This time, the reason has to do with one might called legal technicalities. You know all that crossing the t’s and dotting the i’s stuff. In recent months, courts in several states have become aware of serious flaws with the documents banks are presenting in court. At the center of the problem are bank employees being required to manage hundreds of foreclosure cases and sign thousands of legal filings. Some bank employees were reportedly signing as many as 8,000 documents in a month, and are being referred to now as robo-signers. The allegation of lawyers defending clients in foreclosure is that there is no way that one bank employee could possibly attest to the facts and figures of so many cases. Therefore, if the evidence which serves as the foundation of the foreclosure case is unreliable, the case can be dismissed.
Now, here is where things get very messy. What if a foreclosure case from a year or two back is reversed and the new owner of the home suddenly does not have clear title? While no one knows how many cases this could really happen with, the events of recent days have now brought into question the title of every foreclosure that has occurred in the last several years. Any fight over clear title would become a claim against the underlying title insurance policy. As a result, shares of title insurance companies tumbled on word of these developments.
At this point, there is no way to know what this all means or what impact it may ultimately have once all of the dust has settled. What is clear is that a troubled real estate market has now even more to worry about. If it wasn’t already difficult enough to get approved for a mortgage, It is impossible to get a home loan without title insurance. It is widely speculated that title insurance companies will be very reluctant to issue title polices on homes being purchased after a foreclosure. Since more than half of real estate sales in recent months were foreclosures, what will this do to an already pathetic real estate market? My guess is that this will continue to keep real estate prices depressed for months, if not longer.
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