Foreclosures May Resume, But They'll Be Much More Difficult

When Bank of America resumes its foreclosures next week, it is going to find that the process is a lot tougher than it was just a few weeks ago.

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Although the evidence is only anecdotal so far, it appears that judges are newly skeptical about the foreclosure process and lawyers for defaulted borrowers are more aggressive in contesting foreclosures. And this will likely mean that foreclosures will take longer and cost more.

In my recent conversations with attorneys who work with banks and attorneys with borrowers, I discovered that the robo-signing scandal is having a serious impact on the judicial foreclosure process.

Although we tend to think of judges as legal interpreters above the influence of the news cycle, the truth is quite different. Judges respond to headlines.

And the headlines have not been pretty. Judges across the country are now questioning the documentation for foreclosures, the process by which banks review delinquent loans, the notarization of affidavits, and even the standing of financial institutions to bring foreclosure actions. These were things the banks could more or less take for granted in the past.

Attorney’s representing borrowers facing foreclosure are also far more aggressively pursuing legal strategies that challenge the right of banks to foreclose. News reports revealing robo-signing and commentary suggesting that many banks do not actually have the notes or lien documents, especially for loans that were bundled into securities, have emboldened the defendants bar, attorneys I spoke with told me.

Borrowers are also emboldened. For as long as anyone can remember, borrowers who had stopped paying their mortgages rarely contested foreclosures. They may have been broken hearted to lose their homes, but they generally went along with the process that took their home away.

That easy compliance may be coming to an end. The perception that banks have been acting dishonestly in foreclosures has broken the trust of borrowers. It has also given birth to the hope that some homes may be kept out of foreclosure even after a default.

“This is as close to a populist uprising as I’ve ever seen,” one attorney who represents a regional bank in the southwest told me.

He explained that some people who once may have been strategic defaulters—willing to lose their homes when the value dropped below the amount owed on it—are now become “strategic resisters.” They stop paying their mortgage, stay in their homes, and fight the bank in court—all the while basically living rent-free.

The strategic resister is still an outlier, according to most of the people involved with foreclosures who I spoke with. But they are growing in numbers.

The net-net of all this will mean that the foreclosure process is going to slow down immensely. Regardless of the steps banks like Bank of America take to repair their processes, much of the damage is done. They will be fighting for foreclosures they could once take for granted.

Companies mentioned in this post

Bank of America

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