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Foreclosure rescissions on the rise

Questions of legality lead to spike

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Posted: Tuesday, March 15, 2011 3:25 pm | Updated: 5:16 pm, Wed Mar 16, 2011.

Foreclosures have hit Lincoln County hard since the economic crash of late 2008, with staff at the Lincoln County Clerk’s Office processing almost one notice of default every working day throughout 2010.

Now, at the start of 2011, another influx has begun, as lenders rush to rescind many of those foreclosures in the wake of several judicial decisions that questioned their legality.

Local real estate agents say a decrease in the number of foreclosures could boost Lincoln County’s housing market, while a Portland-based real estate attorney says the rescissions represent an opportunity for defaulting homeowners to improve their situation.

Lincoln County Clerk Dana Jenkins said the number of rescission requests has skyrocketed in 2011, with 75 being processed since the start of January, each of which put a halt to a pending property auction.

In February, the number of foreclosure rescissions exceeded that of new foreclosures (see graph).

Jenkins said most of the rescission requests received by his office involve the Virginia-based company Mortgage Electronic Registration Systems Inc., or MERS.

According to its website, MERS was set up to streamline the mortgage process by using electronic commerce to eliminate paper, a move that makes it easier for loans to be bought and sold between lenders.

However, decisions from several of Oregon’s federal judges in late 2010 and early 2011 have indicated that lenders who are unable to provide a complete paper trail for their loans might forfeit the right to foreclose properties in the traditional manner — advertising the notice of default and then auctioning off the repossessed properties on the steps of the local courthouse.

Instead, the judges said, lenders might have to prove their case in the court system.

“When the public record is lacking, the foreclosing beneficiary must prove its interest in a judicial proceeding,” Chief Bankruptcy Judge Frank Alley wrote in a memorandum opinion dated Feb. 7.

Mike Roy, of Lincoln City Realty, said a judicial foreclosure process is a longer and more complex process for lenders to go through.

“Then you are talking about court filing fees, attorney fees and service fees,” he said, “It’s quite an expensive process.”

Phillip Querin, of Querin Law LLC in Portland, said lenders would be well-advised to avoid taking their cases to court, where homeowners would have the power of discovery to unearth details that lenders do not have to disclose in a non-judicial foreclosure.

“Then, all of a sudden,” he said, “a bright light will be shined on a lot of the funny business that they have been involved in by ignoring the recording statute [in Oregon law].”

Querin said the effect the rescissions will have on defaulting property owners is not yet clear because the banks and foreclosure trustees have not made it clear what they intend to do next.

“It certainly doesn’t mean they [homeowners] get a free house,” he said. “It certainly doesn’t mean the problem will go away.”

Querin said homeowners should take advantage of the rescissions to work with their lender to modify the terms of their loan and hang on to their property.

Failing that, he said, lenders might be willing to agree to a short sale, a process where the property is sold for less than the amount of the outstanding loan but which avoids the costs of foreclosure.

In the past two years, foreclosures and short sales have become a significant component of the local real estate market, with figures from the Lincoln County Assessor’s Office showing that such properties accounted for more than 20 percent of all sales in 2010 (see graph, right).

Roy said a decline in foreclosures could end up helping the local real estate market because there would be fewer distressed properties competing with regular sales.

“In other words, they’ve slowed down the machine,” he said. “There’s not as many foreclosed and bank-owned properties on the open market.”

Jenkins said his office has received several rescissions from ReconTrust Company, a California-based subsidiary of the Bank of America, which handles the bank’s foreclosure proceedings.

ReconTrust did not return a call seeking comment on its reasons for filing the rescissions, but, in a recent statement to the Oregonian, a Bank of America spokesperson said the company had canceled some sales to ensure homeowners had the chance to explore options that could avoid a foreclosure.

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Welcome to the discussion.

2 comments:

  • Lovethebeach posted at 10:55 pm on Tue, Mar 15, 2011.

    Lovethebeach Posts: 2

    Sterling bank needs to acknowledge their responsibility for poor business practices. Accepting a short sale on property, then suing the seller, his unknowing wife and mother with ahlzheimers is the example of the unfair treatment some borrowers have experienced. The court costs alone are astronomical. It would of been better not to work with sterling to sell the property.

     
  • Copper posted at 5:24 pm on Tue, Mar 15, 2011.

    Copper Posts: 570

    Ok, I admit I learned a new word today -- rescission. I'm glad to know this word. An attempt to find some positive resolution to these tough economic times.

    Thanks for reporting about it, Patrick.

     

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