Foreclosures: No Mortgage Payments For Years

We keep hearing reports that mortgage foreclosures and delinquencies are down and here’s why: Lenders are plainly not foreclosing once a borrower has missed three monthly payments.

So why have foreclosures stalled? The answer is that the process of recording mortgage notes is so screwed up that it’s stopped foreclosure activity worth hundreds of billions of dollars.

This issue has been known for years, since at least the 2007 Boyko decision when a federal judge in Ohio refused to foreclose 14 homeowners. The problem: The loan notes, the paperwork needed by a lender to show standing in a foreclosure case, could not be produced in court. No note, no ability to foreclose.

One problem is that loans around the country have been originated locally and then sold into MERS — the Mortgage Electronic Registration Systems. The idea was that once ownership of a note had been sold to MERS, then MERS members could electronically trade ownership of the note back and forth without physically registering each sale and purchase with local government recordation offices — or paying the recordation fees.

However, it turns out that the electronic system is hardly foolproof and we have also discovered that many foreclosure claims were made on the basis of robo-signing — a process where a clerk signs hundreds if not thousands of foreclosure affidavits per day. The problem, of course, is that if hundreds or thousands of sworn statements are made per day then some of them could be wrong — meaning that someone might lose a home unfairly and unjustly.

As a result of the MERS system and the separate robo-signing scandal courts in many states now demand better paperwork before a home can be foreclosed. There’s a stalemate — lenders can’t foreclose in many instances, borrowers will not pay and the bottom line is an historic set of payment delays.

RealtyTrac reported for the first half of 2011 that the foreclosure process an average took 318 days from the initial foreclosure notice to the completed foreclosure, up from a revised 298 days in the first quarter and up from 277 days in the second quarter of 2010.

“The foreclosure process took the longest in New York,” said the company, “at 966 days on average for properties foreclosed in the second quarter, followed by New Jersey at 944 days and Florida at 676 days. Texas posted the shortest foreclosure timeline, at 92 days for properties foreclosed in the second quarter, followed by Virginia at 106 days.

Also, said RealtyTrac, “U.S. REO properties that sold in the second quarter took an average of 178 days to sell from the time they were foreclosed, up slightly from 176 days in the first quarter and up from 164 days in the second quarter of 2010. REO properties took the longest to sell in New York, at 309 days, followed by New Jersey at 285 days and Minnesota at 268 days.

“U.S. properties in the foreclosure process that sold in second quarter (typically short sales) took an average of 213 days to sell from the time they entered the foreclosure process, down from 228 days in the first quarter but up from 195 days in the second quarter of 2010.”

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