GMAC, JP Morgan Chase Problems Expected to Slow Home ForeclosuresOct 1, 2010 | Parker Waichman LLP
Home foreclosures are slowing to a crawl with the disclosure that some lenders failed to properly follow legal procedures when they moved to seize homes. According to The New York Times, even lenders with no known problems are expected to take a more cautious approach to home foreclosures in the wake of scandal.
In the past several weeks, it was learned that foreclosure processors for two of the country’s biggest home loan lenders – GMAC Mortgage and JP Morgan Chase – disclosed in depositions that they or their team had signed 10,000 or more foreclosure affidavits a month. Those affidavits say the preparer personally reviewed the files, but in their depositions, the workers acknowledge they had no time to actually do that.
GMAC issued a two-page “urgent” memo dated September 17 telling brokers to immediately stop evictions, cash-for-key transactions, lockouts and to suspend sales of properties already taken back by the bank in foreclosure in 23 states where home seizures require a court order. GMAC also began withdrawing affidavits in pending court cases.
Yesterday, JP Morgan Chase said it was suspending 56,000 foreclosures in the same 23 states. However, it has not withdrawn any affidavits and is allowing sales to proceed.
According to the Times, the disclosures by JP Morgan and GMAC are going to create a mess:
“As more defaulting homeowners become aware of the lenders’ problems, they are expected to hire lawyers and challenge the proceedings against them. And if completed foreclosures were not properly done, families who bought the troubled homes could be vulnerable to claims by the former owners.”
Already, one title insurer – Old Republic National Title – has sent a bulletin to agents saying that “until further notice” it would not insure title to properties foreclosed upon by GMAC, the Times said.
Attorneys general in half a dozen states are demanding action or opening investigations, and several have sought to have GMAC and JP Morgan foreclosures suspended.
There may be one ray of light in this entire disaster. According to the Times, some economists say the problems could eventually help the housing market recover. If many foreclosures are delayed or never happen as a result of these problems, housing prices might finally hit bottom.
“Maybe this is like shock therapy,” economist Karl E. Case told the Times. “Maybe this will actually get the lenders to the table and encourage them to work out deals that are to the benefit of everybody.”