by Nancy Osborne, COO of ERATE®
(01-14-10) Foreclosures are likely to take front and center stage in the New Year for a number of interesting reasons.
The next wave of mortgage defaults and subsequent foreclosures is already in motion now that the sub-prime category has experienced its fallout, the next categories to be shaken out are the Alt-A and prime mortgages as we've shifted from foreclosures driven by risky lending practices into foreclosures driven by the weakening economy and resulting job losses. Add in the continuing decline in real estate prices in many regions of the country and you have a situation which could only be gaining steam and building momentum into 2010.
However a silver lining may be emerging for homeowners hoping to keep their lenders in check as the courts begin taking a closer look at the mechanics of the foreclosure process in some cases.
Lenders, for the most part, still do not have a handle on the crisis they are dealing with either from an organizational or technological stand point. Various departments do not adequately communicate with one another as many large lenders are still left struggling to digest lenders they have been forced to merge with or acquire.
The loss mitigation department which normally handles the loan modification process within a lender's organization, is frequently unaware of steps being taken by the very same organization's foreclosure department, as it has been reported by a number of frustrated consumers that foreclosure proceedings have been initiated against them just as their loan modification is being approved by the very same lender. However the problem facing lenders/servicers appears to be moving beyond the organizational realm and into the legal realm.
It seems that courts around the country are taking a look at the Mortgage Electronic Registration Systems (MERS) which is the tracking system utilized to maintain and reference mortgage record filings.
As the mortgage crisis has evolved, the cracks in the MERS system are becoming more apparent and the courts have begun taking notice. The system was established to maintain and record any changes which occurred in the ownership of a mortgage and determining this ownership is of critical importance to the foreclosure process.
Determining ownership reveals which party may have the legal right to initiate a foreclosure proceeding. Because the owner of a mortgage is typically assigned with the right to foreclosure in many legal jurisdictions, it is becoming a problem for parties seeking to enforce the terms of a mortgage note when they may not have legal ownership of it.
It is believed this will become an increasingly important argument as some foreclosure proceedings may be stopped because the wrong party, without proper legal authority, attempted to initiate the foreclosure proceeding and take a borrower's home. This may seem like a simple technicality but it is one the courts will likely need to address soon.
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.