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Slowing the Runaway Foreclosure Train

Posted By Barry Ritholtz On October 4, 2010 @ 7:20 am In Credit,Markets,Real Estate | Comments Disabled

“Defective documentation has created millions of blighted titles that will plague the nation for the next decade.

-Richard Kessler, an attorney in Sarasota, Florida, who conducted a study that found errors in about three-fourths of court filings related to home repossessions.

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The out of control foreclosure machinery has officially been brought into the shop for repairs.

The real estate financing industry appears to have brought the same technical expertise that allowed automated underwriting of mortgages to an automated foreclosure process: Structurally flawed, rife with errors, guaranteed to fail — and in need if an immediate overhaul.

[1]As we have seen, homeowners without mortgages [2] have lost their home to foreclosure. That this legal impossibility actually occurred  reveals the foreclosure process, especially in Florida (but other states as well)as little more than a legal conveyor belt, bereft of oversight, manned by parasitic law firms and over whlemed bankers.

It is Lucy on the chocolate factory line [1], only with Homes being repossessed instead of bon bons slipping by unwrapped.

This more than merely “flawed paperwork [3]” — the entire process is problematic. It has reached such depths that numerous banks have voluntarily stopped foreclosures while they review their internal processes, and the methods used by local law firms they hire. Called Foreclosure mills, many of these firms employ illegal methods to their legal practices. They use robo-signers instead of reviewing documents reviewed by lawyers; they hire process servers with histories of fraud and criminality. In the pursuit of foreclosure profits, they have tried to turn the practice of law into a clerical act of foreclosure, repossession, and resale — consequences be damned.

We have continually argued all of the HAMP and foreclosure abatement programs are ultimately counter-productive [4], and benefit the banks [5], not the home owners. I have called for allowing the process to proceed naturally, letting prices fall to where they will. Further, We have never opposed the foreclosure process as a price discovery mechanism.

But what is going on in Florida and elsewhere is a national embarrassment. What is required here is a full blown investigation from the US Attorney’s office.

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Sources:
Foreclosure Errors May Cloud Ownership of U.S. Homes [6]
Kathleen M. Howley
Bloomberg, October 1, 2010
http://noir.bloomberg.com/apps/news?pid=20601109&sid=a5bktFClcWS0&pos=13

Foreclosure? Not So Fast [7]
ROBBIE WHELAN
WSJ, October 4, 2010
http://online.wsj.com/article/SB10001424052748704029304575526182962738098.html

Foreclosures Slow as Document Flaws Emerge [8]
DAVID STREITFELD
NYT, September 30, 2010
http://www.nytimes.com/2010/10/01/business/01mortgage.html

7 major lenders ordered to review foreclosure procedures [9]
Ariana Eunjung Cha
Washington Post September 30, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/30/AR2010093006563.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/10/slowing-the-runaway-foreclosure-train/

URLs in this post:

[1] Image: http://www.youtube.com/watch?v=4wp3m1vg06Q

[2] homeowners without mortgages: http://www.ritholtz.com/blog/2010/09/man-without-mortgage-loses-home-in-foreclosure/

[3] flawed paperwork: http://www.nytimes.com/2010/10/04/business/04mortgage.html

[4] ultimately counter-productive: http://www.ritholtz.com/blog/2010/03/more-foreclosures-please/

[5] benefit the banks: http://www.ritholtz.com/blog/2010/08/guess-who-benefits-most-from-foreclosure-abatements/

[6] Foreclosure Errors May Cloud Ownership of U.S. Homes: http://noir.bloomberg.com/apps/news?pid=20601109&sid=a5bktFClcWS0&pos=13

[7] Foreclosure? Not So Fast: http://online.wsj.com/article/SB10001424052748704029304575526182962738098.html

[8] Foreclosures Slow as Document Flaws Emerge: http://www.nytimes.com/2010/10/01/business/01mortgage.html

[9] 7 major lenders ordered to review foreclosure procedures: http://www.washingtonpost.com/wp-dyn/content/article/2010/09/30/AR2010093006563.html

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