“Erroneous Foreclosures”

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CreditSlips.org has posted an article about what Alan White, author of the article, refers to as “erroneous foreclosures.” It’s generally assumed that when a homeowner goes into foreclosure that they are behind on their mortgage, so shouldn’t they have seen the foreclosure coming?

The answer to this question comes in two parts:
1) No.
2) Even homeowners who are indeed delinquent should not be foreclosed in the current housing market if any reasonable workout is possible.

These erroneous foreclosures can come in two types: paperwork, payment errors or other mishaps that are clearly the lender’s error, or foreclosing on a homeowner whose income would allow them to keep their home if they were granted a loan modification. However, modification proceedings usually begin at the same time the foreclosure is processed and most of the time the foreclosure is conveniently finished being processed first.

The clearest evidence of widespread errors and poor performance in mortgage servicing comes from data on HAMP and other modification programs. The modification and robosigning issues intersect most clearly in the frequent cases (now the subject of several class actions) where borrowers making payments under temporary or permanent HAMP mods are foreclosed. In those cases, affidavits of default are necessarily false.

A HAMP report from February of this year shows that there were 36,000 complaints regarding lost paperwork, lack of communication with lenders/servicers, and “inappropriate requests for modification fees.” The Treasury’s rule requires that homeowners seeking a modification be contacted by the servicer within 30 days, however, the average time span for completing a modification is as long as 14 months.

We can also infer high error rates from the fact that by any reasonable measure some banks and servicers are doing far more than others, given their numbers of defaulted mortgages, to work out and modify mortgages. In other words, some servicers are likely engaging in unnecessary foreclosures, and have NOT exhausted all alternatives before proceeding. For example, conversion rates from temporary mods to permanent mods vary from 60% to 24% (BankofAmerica). The percentage of 3-month trial mods more than four months old is as high as 50% (BankofAmerica).

If servicers were taking the time to explore all possible options before jumping to foreclose, these percentages could be slashed. Also, the Treasury says that if servicers were following all the guidelines and judging between preventable and inevitable foreclosures then there wouldn’t be such differences in their percentage reporting.

If you would like more information on foreclosures, please check out our articles The Three Stages Of Foreclosure In Alabama and Wrongful Foreclosures In Alabama.

If you have further questions or concerns, feel free to contact us through our website or by calling 205-879-2447. You may also obtain a copy of our free book on stopping wrongful foreclosures and the problems of hidden fees by emailing us.

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