Mortgage foreclosures are once again making headlines. This time it?s about revelations that documents used by the lenders to prove to the court that the foreclosure is warranted may be faulty.
Here is a link to a great New York Times article about how this all came to light.
Courts require evidence in order to prove that a borrower is in default under their loan.?Often this evidence is provided in the form of a sworn affidavit made by an employee of the lender. The affidavit states?how much is owed and other pertinent facts necessary to establish that a foreclosure and resultant eviction is warranted.
The affidavit will state that the employee making it has personal knowledge of the facts. Apparently in many instances this may not be true. Lenders?are accused of?hiring employees?just to sign?hundreds of these affidavits every day without much understanding of what the affidavits meant, let alone whether the facts were true.
And if the evidence used to support the judgment of foreclosure is faulty, maybe the foreclosure itself is faulty? That?s what borrower?s attorneys will be arguing anyway.
Investors and homeowners that have recently purchased property that came through foreclosure are concerned. If the validity of the foreclosure is challenged because of a faulty affidavit or other reason, where does that leave them??Hopefully?the?new owners purchased or received an owner?s title insurance policy when they acquired the property.?If the foreclosure is later challenged, in most instances the title insurance company will be obligated to defend the new owners in court.
In the unlikely (in my opinion) event the foreclosure is overturned, the title insurance company would either make a payment to secure the new owner?s title or pay the new owner the value of the loss up to the policy amount.
As far as new or pending foreclosures, the major national title insurers are considering requiring that?the lenders agree to protect the title insurer from claims that the?court?proceedings are faulty. Otherwise the title insurers?may not insure new purchasers against a challenged foreclosure.
The largest national lenders have postponed their foreclosure activities in the twenty three states where a court must approve a foreclosure. (Indiana is one of them.) Once they review their processes, they may resume the foreclosures or re-file the affidavits. On properties they now own where the foreclosure has been completed it will be interesting to see if they go back and re-open the foreclosure.
Lenders must also deal?with the political fallout of fifty state attorney generals running for office while investigating their foreclosure practices.?Class actions lawsuits are sure to follow.
This story is strangely fascinating. It?s like watching an avalanche or earthquake in slow motion ?not knowing what will be damaged or destroyed next, but being certain that something will.
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