Foreclosures: A Busted System Or Veiled Opportunity? In the past few weeks, three banks have said they are holding off on foreclosures because of what they call "procedural" issues. And several states have banned all or some foreclosures. But analysts are split on whether these developments will help or hurt the housing recovery.

Foreclosures: A Busted System Or Veiled Opportunity?

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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.


And I'm Mary Louise Kelly.

Normally, foreclosure on a home can take a year or more. Now it will likely take longer. In the past few weeks, three banks have said they're holding off on foreclosures because of what they call procedural issues. Several states, including Texas and California, have stopped some or all foreclosures. And at least a half-dozen states are investigating whether banks cut corners in the foreclosure process.

NPR's Yuki Noguchi has this report on whether these developments may help or hurt the housing recovery.

YUKI NOGUCHI: A foreclosure involves reams of paperwork.

DUSTIN ZACKS: You've got virtually every phone call, every mailer, every payment received, every bill sent out for however many years since this loan was taken out

NOGUCHI: Florida attorney Dustin Zacks represents people contesting foreclosures. He questioned workers at companies handling his clients' foreclosures, who had signed affidavits saying they had personal knowledge of all the documents in each of those cases.

ZACKS: And when we asked them, okay, what books, records and documents did you look at? The answers were startling. And the answers were: Nothing, I didn't look at anything outside of this affidavit.

NOGUCHI: Such affidavits are required in states where courts oversee the foreclosure process. Since this came to light, three banks: Chase, Bank of America, and Ally Financial - an NPR underwriter - said they would delay foreclosures in those states.

That's not all. House speaker Nancy Pelosi, this week, asked for a Justice Department investigation, and some are calling for a nationwide moratorium.

The question is: How significant is this to the housing market overall? The answer, in part, depends largely whether banks and their loan servicing operations were sloppy, just on this final affidavit, or all the way through the process.

For their part, Chase and Ally said, in statements, they stand by the validity of their foreclosures. In other words: No one was wrongfully kicked out of their home as a result of the so-called robo-signing of affidavits.

Michael Knoll is a University of Pennsylvania professor of law and real estate. He says if all other procedures were proper, it's a minor blip. The delay will only last a few months. But if the state courts discover a pattern of cutting corners, for example, that homeowners didn't get timely or proper notice from the banks, that is a big problem.

MICHAEL KNOLL: In that case, the potential problem is, the foreclosure mechanism is basically busted.

NOGUCHI: And if the system is busted, then it's likely busted for the whole country, not just the states where the banks are delaying their foreclosures.

KNOLL: It could be a real mess. And it can especially be a real mess if you're somebody who bought one of these houses and now there's question: Did you get good title?

NOGUCHI: In other words, there's a possibility a bank will have to unwind a foreclosure on a home that's already been sold to someone else.

Rick Sharga is vice president at RealtyTrac, a research firm. He says he doesn't believe it will come to that.

RICK SHARGA: Bottom line is it's not expected by anybody at the moment, that we'll see a large number of these foreclosures overturned. Or that we'll see any reason that the paperwork might actually have been in error, once it's reviewed.

NOGUCHI: Sharga says he thinks the main outcome is that the delays will simply prolong an already protracted housing crisis.

But on the other side, Bruce Marks believes such a delay could actually help stabilize the economy. Marks is CEO of the Neighborhood Assistance Corporation of America, one of the most vocal homeowner advocacy groups.

BRUCE MARKS: The foreclosure conveyor belt has been stopped. And now is our opportunity to reinvent, to do this process the correct way.

NOGUCHI: He says, if this new scrutiny forces banks to give each case more individual attention, perhaps more homeowners will avoid foreclosure or get modifications on their loans. And that, he believes, is the key to a healthier economy.

One thing is certain: The banks will face many more legal challenges over their foreclosure processes. Marks says his group plans to help thousands of homeowners file suits contesting their foreclosures.

Dustin Zacks, the Florida attorney, says his firm has already fielded calls from people who say their foreclosure documents were signed by one of the robo- signers.

Yuki Noguchi, NPR News.

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