Since the Texas Attorney General called for a foreclosure freeze I have been getting a lot of calls with questions about what is going to happen in our real estate market. It was already scary with appraisal issues, a flood of distressed properties on the market, interest rates at all time lows, gold at all time highs, tax credits ending, and now this. This is not a normal blog post for me. It is lengthy and I hope you will hang with me because if you have anything to do with short sales or mortgage foreclosures this is all information that you need to know.
Know that Texas is not alone. Other states are taking similar action. Maryland’s Governor is supporting a 60 day moratorium on foreclosures there. Delaware is reviewing pending foreclosures and in Massachusetts. The attorney general said her office is investigating “an apparent failure of major creditors to follow state foreclosure law.”
So what exactly is going on? First, I want you to know I am getting my information from several sources – The National Assoc. of Realtors, The Texas Association of Realtors, The Associated Press, and the Real Estate Research Center at Texas A&M University.
Because of current widespread scrutiny over how foreclosures are processed nationwide, the Texas Attorney General’s office has called for a halt on all foreclosures.
Notices were sent to 30 Texas loan servicers, including Bank of America and JPMorgan Chase & Co.
The action is being taken “in an effort to determine the full harm Texas homeowners may have suffered or could suffer as a result of these business practices, including improperly signing documents related to the foreclosure process,” said Jerry Strickland, a spokesman for Attorney General Greg Abbott.
The office also called for a stop on the sale of properties previously foreclosed upon and all evictions of people living in previously foreclosed upon properties.
So basically the Texas Attorney General, Greg Abbott, is now investigating 30 Loan Servicing Companies and the accuracy of their foreclosure documentation. Until these institutions have taken 8 specific steps to rectify possible past errors in mortgage documents, they must suspend all foreclosures, all sales of properties previously foreclosed upon, and all evictions of persons residing in previously foreclosed upon properties.
North Texas real estate experts say they believe, in the short run, the foreclosure freeze will mean potential buyers will find fewer deals as they search for homes. For now, people can continue living in homes facing foreclosure.
The 30 loan companies are being investigated on suspicion of “robo-signing,” which means signing foreclosure documents without reading or reviewing them first. “Robo-signing” is a practice in which bank employees sign thousands of foreclosure documents a month without verifying their accuracy or even reading them. Some of the court documents have proven to contain inaccurate information or improper notarization or signatures.
The vice president and escrow officer with Lawyers Title Insurance Company, said small and large banks have been under pressure from regulators to unload a record number of foreclosed properties over the last couple of years, which has resulted in depressing the real estate market overall. With the freeze, that will likely slow down and help stabilize the market. I personally don’t agree with him, I don’t see this situation helping to stabilize anything. Banks that do not recover funds in distress are not going to want to lend freely to new clients.
The AG’s letter asks that companies obey the moratorium at least through Oct. 15 — the deadline Abbott established for companies to identify any employees who participated in unlawful practices and assure the state that the targeted companies are following Texas laws.
The attorney general’s office is investigating mortgage lenders to determine the “full harm Texas homeowners have suffered,” according to a letter signed by Paul D. Carmona, the chief of the state consumer protection and public health division.
“We will be pushing forward with our investigation and inquiry,” attorney general spokesman Jerry Strickland said. “This is in the interest of homeowners who are feeling the effects of foreclosures.”
We are heading into election season so it’s not surprising that House Speaker Nancy Pelosi has called for a federal investigation of foreclosure sales and evictions nationwide.
Observers say that if the government gets further involved and millions of foreclosures need to be re-processed, it is unclear how long the job will take and how costs will be allocated.
Lenders are rushing to review their own situations.
Simultaneously to all of this foreclosure mess, title insurer Old Republic Nation has said it will stop insuring the sales of homes foreclosed by JP Morgan Chase & Co or GMAC Mortgage until questions about documentation are cleared. An inability to get title insurance has the potential to stop home sales altogether.
So let’s get back to this letter that was sent to the 30 lending institutions. What exactly is a demand letter?
A demand letter is a tool lawyers use to ask someone to do something. The demand letter by itself does not have the force and effect of law. A demand letter typically will describe possible future legal action against the recipient of the letter if the recipient does not take certain actions. In this case, Texas Attorney General Abbott has noted possible violation by these banking institutions of the Texas Deceptive Trade Practices Act, the Texas Debt Collection Act, the Texas Penal Code, the Texas Property Code, the Texas Government Code, and the Texas Constitution.
So how will the banks now respond to these letters?
We don’t know. Some banks have already halted foreclosures due to concerns about the accuracy of documents and the integrity of the loan servicing and the administration of the foreclosure process. The Houston Chronicle reported on Oct 6 that some banks will not honor the AG’s request. We will have to wait to find out.
Most of the phone calls I have been getting are from my clients who are trying to sell their homes so they won’t get foreclosed on. So we all want to know how the demand letter will affect our current transactions.
If an institution chooses not to respond to or honor the demand letter, then the transaction should proceed as if no demand letter was sent out.
If an institution chooses to respond to the demand letter, then the transaction could be affected in various ways. The 5 possible outcomes are the following:
- Foreclosures – Institutions that honor the AG’s request will likely postpone foreclosures that have already been posted and will likely not post additional foreclosures until the dispute has been resolved.
- Foreclosed Properties that are listed for sale – Institutions that honor the AG’s request will likely not enter into a sales contract for a listed foreclosure until the dispute has been resolved.
- Foreclosed properties that are under contract for sale – Institutions that honor the AG’s request may delay closing a sales contract for a listed foreclosure under contract until the dispute has been resolved.
- Short sales – Institutions that honor the AG’s request may choose to delay closing on a pending short sale transaction until the dispute has been resolved.
- Evictions of persons residing in previously foreclosed upon properties – Institutions that honor the AG’s request will likely not evict previous homeowners who continue to live in the foreclosed house until the dispute has been resolved. The institutions could, however, attempt to convince the occupant to leave the property by offering cash for keys.
Note that for Commercial and Residential properties – The demand letter makes no distinction between the two.
Now, my advice to you as a consumer if you are interested in purchasing a short sale or foreclosure or are in that process or if you are a distressed homeowner and face your own short sale or foreclosure situation…I recommend that you only use a Realtor that you trust that stays on top of Texas Housing news and is knowledgeable about short sales and foreclosures. I hold the CDPE Designation which is a Certified Distressed Property Expert Designation, the SFC which is a certification for short sales and foreclosures and I have experience with listing and selling short sales. I have closed short sale transactions and there are a lot of Realtors that cannot say that. If you find yourself in this situation you want someone that can take care of your transaction every step of the way. At my brokerage, Register Real Estate Advisors, we have the experience and expertise to help you. I will continue to follow this concerning situation on my blog and update you as new information is released. Because I stay on top of the Real Estate News I have a lot of real estate agents that follow my blog.
To those agents, you should know the Texas Association of Realtors has a legal hot line for Realtors to call if they have questions about their pending short sales and foreclosures. If your broker has not informed you, you should know that the demand letter should have no effect on Texas Realtor liability for individual transactions. The Realtor remains an agent of and fiduciary to the Realtor’s client. The demand letter does not change that relationship.
If you know someone is having trouble paying their mortgage, have them call me early, because when they get the foreclosure notice it is probably too late. To salvage the home or their credit, the earlier they get started, the better.
If you have questions you can continue to call me at 281.288.3500 and if I don’t know the answer, because things are changing so quickly these days, I do know how to find it.