When a bank takes back a property, it becomes REO or Real Estate Owned.  Usually, a large amount of REO affects the ability of banks to lend, but the rules seem to have changed for these Mega Banks such as BofA, Wells Fargo, and Chase.  Historically, when a bank took a property into their REO division, they would waste no time in divesting themselves of that asset.  There were excellent investment opportunities available from buying up these properties.  Purchasing bank owned properties usually still offers good value to buyers, but due to the scarcity, we are seeing them bid up above the list price. 

If a property is taken back by the bank but does not emerge back on the market for sale as an REO,  where does it go?  The answer is that it goes into what is know as the Shadow Inventory.   We see it often on a failed short sale that is foreclosed on  for one reason or another.  Failed short sale negotiations often result from an uncooperative second or subordinate lender.  We specialize in negotiating these short sales, but only have a 75% success ratio when there is a second lender.  The property was for sale and a buyer was ready to close when the property was foreclosed on.  The property goes off the market and into the shadow inventory sometimes for years.  This is the Shadow Inventory and it may be a conscious effort to keep these  properties off the market so that prices can stabilize.  This may be a factor in what we are seeing in pricing levels as it is always correlated to supply and demand.  The bottom line is that we cannot call a bottom until we see prices begin to rise and stabilization is the first step in forming a bottom.  It is difficult to hit it just right and buy at the bottom, but given a choice, you should choose buying just before the bottom rather than on the way up.  As the market sentiment will have changed, the discount window will have closed and you will likely be paying retail or above after the bottom has come and passed.

Ally Financial’s GMAC Mortgage acted after manager Jeffrey Stephan gave a statement to opposing lawyers that he had signed off on legal documents for 10,000 foreclosure papers a month without following verification procedures. Those lawyers say they’ve obtained similar statements from employees at JPMorgan Chase and OneWest Bank – formerly IndyMac Federal Bank – that court papers weren’t properly verified before being filed.

“We’ve taken depositions at other servicing companies that take these documents without reviewing them,” says Christopher Immel, a lawyer at Ice Legal in West Palm Beach, Fla. “They were filing fraudulently. It’s rarely done correctly.”

In one case, Erica Johnson-Seck, a vice president at OneWest, said she signed 750 foreclosure documents a week and didn’t read each document before signing it, according to a 2009 deposition obtained by Ice Legal. She also said they were signed without a notary present.

In a May 17 deposition, also taken by Ice Legal, Beth Cottrell, a supervisor at Chase Home Finance, a division of JPMorgan Chase, said she was among eight managers who signed off on about 18,000 foreclosure papers a month.

Cottrell said she only reviewed the entire foreclosure document if another employee raised a question about it.

JPMorgan Chase declined to comment.

“How can a judge rely on something when the person who is signing it doesn’t even know what they’re signing?” says Ice Legal lawyer Dustin Zacks. “I find it very hard to believe it’s limited to the few depositions we’ve taken.”

In many states, servicers must file a motion in court to take possession of a home in a foreclosure. To support their motion, a representative has to verify they’ve reviewed the supporting documents, checked who owns the mortgage note and had a notary public witness their signature.

Ally Financial said Friday that delays in completing foreclosures should be resolved before year’s end. It also said it’s confident that processing errors did not result in any inappropriate foreclosures.

Fannie Mae and Freddie Mac are reviewing foreclosures on GMAC-serviced mortgages they own and have halted evictions on them until the review is done. Fannie Mae says it is also reminding servicers to follow proper procedures.
Courtesy of  USA TODAY, a division of Gannett Co. Inc., Stephanie Armour.

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