Archive for November 30th, 2010

Beware of title problems as foreclosure sales resume

Shannon Behnken of the Tampa Tribune covered the story about Fannie and Freddie resuming foreclosure sales the right way – by reminding everyone: (1) flooding the market with properties will further drive down real estate values; and (2) there are significant concerns about the validity of title being conveyed by properties in foreclosure sales.  

Here’s the article:

TAMPA – Mortgage giants Fannie Mae and Freddie Mac have lifted their ban on selling foreclosed homes, which could potentially double the number of these homes available for sale in the region.

That could be good news for home buyers who now have a lot more options. But flooding the fragile real estate market with distressed homes will further push down prices, some industry leaders say, and make it more difficult for traditional home sellers to compete.

Some question whether buyers will even want the foreclosed homes.  With allegations of foreclosure fraud still unsettled, can buyers trust they’re getting these homes free and clear? Do they have to worry that later – even years later – the previous homeowner could sue to get the house back?

“If you pick a random case, the chances are good that there won’t be a title problem,” said Mark Stopa, a Tampa foreclosure defense attorney. “But I wouldn’t be surprised if there are 50,000 cases in Florida where the previous homeowner would have a valid claim to void the foreclosure.”

Fannie and Freddie together hold about half of the foreclosed homes in Florida. Both of them halted sales of foreclosures in September, amid revelations that servicers were signing key foreclosure documents without reading them or verifying the information was true, as required by law.

There also are accusations that some firms hired to serve homeowners with lawsuits failed to notify them. Some homeowners say they thought they were working on loan modifications with their lenders only to find out later that the home was already sold in foreclosure.

In those cases, foreclosure defense attorneys say, judges could reverse foreclosures, causing title problems for buyers who purchased these homes.

Stopa is representing two former homeowners who are suing to get their homes back. In both cases, the plaintiffs say they weren’t given the chance to defend themselves in court.

In one case in Pinellas County, Michael D. Carlson has asked a judge to undo a foreclosure judgment against him from 2008. He says he didn’t know about the foreclosure proceeding on his Dunedin rental home until he went to check on the house and found the bank owned it.  Bank of America sold the home more than a year ago to another family, Stopa said, and they had every reason to believe they owned the foreclosed property free and clear.

The Carlson case represents “the perfect storm” and a home buyer’s worst nightmare, said, Peter Murphy, a consultant with Tampa-based Home Encounter, a real estate consulting firm and brokerage that tracks local real estate trends.  Buyers can never be sure there won’t be a challenge to the title, Murphy said, but title insurance should protect them from liability.  “Now that doesn’t mean they’ll get to keep the house if there’s a challenge to the title and, yeah, that’s unnerving,” he said.

Home sales in the Tampa-St. Petersburg-Clearwater area plummeted 25 percent in October, compared to a year ago. Real estate agents said the foreclosure moratorium was partly to blame because some pending deals fell through.

Putting the homes on the market all at once will cause home prices to drop, but Murphy said he thinks it’s better to get it over with now.  “If you wait, neighborhoods and homes will further deteriorate,” he said. “I don’t think homes will fly off the market, though, because people are fearful as to what will happen in the economy.”

Vernon Taylor, president of the Greater Tampa Association of Realtors, said he’d “be nervous to buy a foreclosed home.”  “Buyers don’t want to go through this hassle and find out later they have a problem,” he said.  Even so, Taylor agreed with Murphy that it’s best for the market to work through the inventory now, not later.

Mark Stopa

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