Document Mess Stalls Market Recovery

Selling the large inventories of foreclosed homes is essential to the recovery of the nation’s housing market. Clearing these inventories was on track until this paperwork snafu which has now resulted in the stalling or suspending of foreclosure proceedings and sales of foreclosed properties across the United States.

Within the last couple of months, some of the nation’s largest mortgage servicers and banks have begun reviews of their pending home foreclosures. A few have went as far as suspending foreclosure proceedings and even foreclosure sales until these reviews are complete. These reviews are linked to potential shoddy paperwork practices by mortgage servicers and banks. There have been allegations stating that some of these companies used ‘robo-signers’ to review and process foreclosure documents. These robo-signers would sign off on thousands of foreclosure documents each month. The problem, these individuals were required to fully review the foreclosure documentation before signing off and furthering the foreclosure proceeding. However, some of these robo-signers signed off on hundreds of foreclosure documents each day. This is said to be proof that these foreclosures were never properly reviewed.

Now, the uncertainty surrounding validity of the foreclosure process has left many potential buyers and investors on the sidelines. These buyers have been leaning more towards buying new or pre-owned homes rather than dealing with the potential problems surrounding the purchase of bank-owned properties. This hesitance could threaten market recovery when figures from RealtyTrac, Inc., show that across the nation, 1 out of 4 home sold during the second quarter were in some stage of foreclosure. Figures from the 3rd and 4th quarters will likely show a hit to sales relating to this foreclosure document snafu.

Real-estate agents are especially concerned about the impact these stalls will have on investors. These investors buy up these foreclosed homes, repair them and sell them again on the market, furthering market recovery and removing the foreclosures from the banks books. The loss of investors will likely cause the supply of foreclosed homes to rise and the date for market recovery will be further off.