The New U.S. Foreclosure Nightmare

What a difference a couple of weeks can make. Two weeks ago, a judge in the U.S. was going through a large number of foreclosure applications. But he noticed something strange: All the applications were executed, and sworn out, by the same person. At that point, he started to ask questions about the validity of the affidavits, and things unraveled in a hurry – nation-wide.

With tens of thousands of foreclosures every month, it turns out that lenders were robo-signing these affidavits. That is, they were just mass signing them, but there wasn’t any of the work done to verify that the lender actually had the right to foreclose, and had the right to the title of the property. Some people were signing legal documents on over a thousand foreclosure applications in a day! Just think about that: They were filing applications to foreclose without even being sure they had the mortgage loan, and certainly without the backup documentation to prove it!

In Canada, mortgages are made by a lender, and held by the lender. So if your mortgage was made by the bank of George that is where the mortgage is held. So if there is a foreclosure, it’s a no-brainer to prove that the bank of George is the lender. But in the U.S., mortgages are administered by third-party servicers who collect the payments, send demand letters, etc. The actual mortgage is sliced and diced, re-packaged, and sold on Wall Street. So a piece of your mortgage is held by an investor in Saudi Arabia, some by a pension fund in Toronto, and another piece by a bank in England. Just imagine that nightmare to prove who the actual mortgage holder is!

Many politicians want all foreclosures stopped. That’s just insane, of course, because it rewards people who aren’t paying their mortgages. But what is happening is that the Attorney Generals in almost every state are now launching investigations and the heat is squarely on lenders who are scrambling like mad, cancelling foreclosures, starting from scratch in others, and giving up on many others.

A few years ago, foreclosures had a bad rap, and pretty much nobody, except high-risk speculators, wanted to buy them. Now, with the majority of all listings being foreclosures, they were hot and selling. After all, it was one way to get a really good deal on a home. People are already being burned badly because of their greed and lack of knowledge. Weekend seminars on how to get rich buying foreclosures charge $3,000 to $10,000, and are a total rip off. Lots of people go to the courthouse steps where foreclosures are first auctioned off, they bid pretty blindly, and discover that they don’t have clear title, and often, that the city, or tax department, has a big lien on the house.

Now, it would be a huge gamble to buy any foreclosed property in the U.S., because the risk is huge. You’ve bought it, but who is to say that the bank had a right to sell it to you in the first place? Yes, there have been sales which have been reversed, where there is proof the lender never had a right to foreclose in the first place.

It is a legal nightmare, and mark my words: The ripples from this will last for a decade.

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