The recent news of "robo-signing" (signing off on foreclosures without reviewing and verifying the information in the documents) has chilled the rapid pace of foreclosures... at least for now.
JPMorgan Chase has frozen foreclosures in about half the country due to the paperwork fiasco.
"It didn't surprise me. You're talking about foreclosure mills that run thousands of foreclosures a month; how can the attorney filing on behalf of them have personal knowledge of all those files," says attorney and educator, Lance Churchill, President of FrontlineSeminars.com.
It's being reported that up to 56,000 foreclosures are affected. An employee for JPMorgan Chase said in a deposition that her team signed off on some 18,000 foreclosure documents per month, yet those loan files and reports were not reviewed, according to MarketWatch.
MarketWatch also reports that at GMAC, as many as 500 foreclosure affidavits per day were signed by a professional signer without reviewing the files or having his signatures notarized.
Real estate finance professor Susan Wachter from Wharton School at the University of Pennsylvania, told MarketPlace's Bob Moon, that this may buy homeowners who are facing foreclosure some precious time.
"That's the beginning and the end. One has to document that one has ownership before one can take possession," says Wachter.
That extra time may afford homeowners the opportunity to actually sell their home rather than have it foreclosed. But in the end, Churchill says, "The bottom line is I think it may be hard to overturn a lot of the foreclosures."
What does this do to the foreclosure market for buyers?
"For the buyers of these properties, there shouldn't be any problem," says Churchill.
But he says it depends on where you purchase them, "If I as an investor bought a foreclosure at an auction and it turned out it's a robo-signing type situation, I shouldn't have any problem or suffer any consequences from it because virtually all state laws provide that if you're a good faith purchaser for value at the auction, you get good title. If there's a screw up where the lender didn't protect the borrower or didn't do something right, that's a lawsuit between the two of them now," says Churchill.
But he does offer this advice about buying foreclosures.
"A new thing that has come into play is the federal government last year passed this Protecting Tenants at Foreclosure Act. If there is a tenant in the property that's foreclosed on [that tenant] can stay for the balance of the lease. So if you buy a property that's occupied, if you don't know whether it's the owner or a tenant that's occupying it, you could get in trouble," says Churchill.
Churchill says if the property is occupied by the owners, they have to leave the property fairly quickly or are evicted. "But because of this new federal law, [tenants] are guaranteed to stay at least 90 days under the federal law and if they have a long-term lease (two-year lease), they can stay for the balance of the lease."
He points out that a tenant does have to make rent payments. "But if you intended to move in to that [property] or flip it, you're going to be stuck with it or you have to figure out a way to buy out the tenant," says Churchill.
As for the robo-signing mess, industry experts expect to see more companies freezing foreclosures due to flawed paperwork at least until further reviews are made.