Claims of Illegal Foreclosures
It appears that different companies besides legal aid groups and public interest law firms are trying to uncover what they call illegal foreclosures. In more and more instances, they are claiming that the lender cannot prove it has legal standing to execute a foreclosure and is not the legal owner of the note. If the lender doesnít own the note, it canít foreclose on it.
Because some companies charge to do title reports, there is debate over whether these companies really want to help defaulted borrowers and foreclosed homeowners or simply profit from todayís growing foreclosure problem.
As a result, lenders have to step up their performance, even if they are 90% comfortable that they own the loan. More than anything, these cases focus most on the procedural aspects of the business and at what point during the process, the lender has to prove ownership of a loan and by what paper trail.
According to industry insiders, it used to be that about 90% of foreclosures were completely unopposed. As a result of that, a lot of foreclosure professionals did business in bulk and fairly quickly. No one really asked anyone to show a detailed chain of title. It was not necessary nor was it required. Looking back, part of why these securitization trusts didnít document the chain of title was probably because of all the costs involved. There was no need to do it.
The industry, part of reducing the overall cost of credit, tried to eliminate a lot of unnecessary procedures. At the time securitizations could have spent millions of dollars recording all of these mortgages. Looking at the market during that time period, when a historically high default rate would have been 2% or 3%, that would have meant 97% to 98% of the time, they paid those fees for nothing. The industry perspective was, ďWeíll do it when we need to do it.Ē
As the standard has changed midstream, these cases are showing us the messiness that comes from organizing the process. I am hearing that at the end of the day, the notes are there, and the bank owns them. Itís not a true factual question but a process question.
In recent years, there has clearly been a shift in homeowners who are trying to fight back. These nonprofit organizations or certain courts want to throw borrowers a lifeline. Now everyone involved in the foreclosure process must look at everything more carefully than in the past. This requires producing a crisper paper trail.
It is not difficult to comply. Lenders should do their homework. Neaten the chain of title before it is filed. It is a reordering of the process. Go through the processes to make sure everything is properly recorded. Foreclosure professionals ó everyone is starting to tighten up their procedures. The lawyers need to do more homework in advance. But in the end, many are telling me that thereís rarely a real question of who the lender is or whether the loan servicer is truly the representative of the lender. And, based on the large number of foreclosure cases that have gone through, it appears the actions have been justified by lenders.
Is borrowing going to become more expensive if the foreclosure process becomes more expensive? Probably so. And while most foreclosures are state matters, there has been action by federal courts to stop them, which causes delays for some that still go through.
In fairness, a lot of cases are handled by public interest firms who are not trying to make money from what is going on. They are simply trying to buy some time for their clients ó to provide some stability. Itís possible with these loan-mod programs the delays may have helped some people because a program that wasnít available now is. A lot can happen in 60-90 days with a loan modification or government action. Some borrowers deserve better service if they have had trouble contacting the lender to talk about a loan mod.
Everyone has the right to representation, but most donít want to see people run a business off of charging excessive fees to help people get out of foreclosure.