Bank of America stops sales of foreclosed homes

Bank of America, Arizona's largest home-mortgage lender, said Friday that it has extended a 23-state moratorium on bank-owned home sales to all 50 states while bank officials scrutinize the way they process foreclosures.

BofA and other big mortgage lenders are facing mounting pressure over how they handle foreclosure-related documents, with growing attention to reports of incomplete or inaccurate documents that aren't subject to rigorous verification before bank officials sign off on them. The moratorium gives the bank time to review and address concerns about whether foreclosures have been completed properly.

The scope and impact of the moratorium remain unclear. The move will reduce the threat of immediate foreclosure for many stressed homeowners, but it also likely will hammer real-estate agents and brokers who have built up business by specializing in bank-owned homes.

Some Phoenix-area homeowners, lawyers and real-estate professionals said the Charlotte, N.C.-based Bank of America Corp.'s 60-word statement about the moratorium was confusing, vague and potentially hurtful to the battered local housing market.

"Bank of America has extended our review of foreclosure documents to all 50 states," the BofA statement said. "We will stop foreclosure sales until our assessment has been satisfactorily completed. Our ongoing assessment shows the basis for our past foreclosure decisions is accurate. . . . Providing solutions for distressed homeowners remains our primary focus."

After BofA's announcement, U.S. Senate Majority Leader Harry Reid, D-Nev., called on major lenders to halt foreclosures nationwide. He joins a long list of homeowner advocates, lawmakers and state attorneys general who have called for greater scrutiny of the foreclosure process.

BofA officials refused all media requests Friday for additional details, such as whether the moratorium was expected to last a week, a month or a year.

Also silent on the issue Friday were a handful of other large banks currently honoring a self-imposed 23-state moratorium on bank-owned home sales, which excludes Arizona. The banks did not say whether they planned to follow BofA's lead.

Those lenders include JPMorganChase & Co., the GMAC Mortgage Unit of Ally Financial, and recent addition PNC Financial Services Group Inc., which announced Friday that it would honor the more limited moratorium, effective only in states that require foreclosures to go through the courts.

The other 27 states, including Arizona, allow a less formal alternative known as a trustee's sale, which occurs outside the court system.

Early media responses to the BofA statement gave conflicting accounts of the potential impact, with some outlets saying the bank had put foreclosures on hold, while others said that the term "foreclosure sales" refers only to the sale of bank-owned homes.

A major player

In the Phoenix area, opinions about the decision's impact also were mixed. Some real-estate experts are bracing for a nightmare scenario, while others said the impact could be minimal.

Regardless, Bank of America, which assumed all Countrywide Financial Corp. loans when it bought the troubled lender, is a major player in the local market.

Real-estate analyst Tom Ruff of Phoenix-based Information Market said BofA foreclosure notices can be identified because they all list the beneficiary's address as 400 Countrywide Way, Simi Valley, Calif., and ReconTrust Co. as the trustee. ReconTrust is a wholly owned subsidiary of Bank of America.

In Maricopa County, there are currently 39,042 single-family residences or condos with an active notice of trustee's sale, according to Information Market's analysis.

Of those, 12,198 pending foreclosures, or 31.2 percent, show Bank of America offices as the beneficiary and ReconTrust as the trustee.

Using a similar approach, Information Market determined that 4,551 of the 20,850 bank- and government-owned homes currently in its database were BofA foreclosures, which is about 22 percent.

Exclusive Homes and Land owner/broker Holly Eslinger, also president of the Arizona Association of Realtors, said the bank's statement raised a number of questions and concerns about the short-term impact on homeowners, real-estate agents and the housing economy.

Among those concerns is the possibility that more homes would be left vacant for longer periods of time, and that the moratorium's eventual end would bring with it a flood of additional bank-owned homes onto the market, placing downward pressure on prices.

Documentation concerns

Robert Churan, Arizona market president of Miami, Fla.-based Marine Bank, said alleged inaccuracies in foreclosure processing are minor compared with the lack of adequate documentation for thousands of home loans that lenders sold to investors during the housing boom.

Most lenders are in possession of the deed of trust to each property on which they are trying to foreclose, Churan said, but they often don't have the promissory note and may not even know its whereabouts.

The larger banks sold most of the notes long ago to the securities market, where they were resold, and sold again, perhaps a dozen times or more, he said.

The deed of trust entitles the holder to take a designated property as compensation for a loss. The promissory note entitles the holder to seek repayment of a debt specified in the note.

Without both documents, there is no legally binding connection between non-payment of that particular loan and the right to take that particular property, Churan said.

Legal standing

Therefore, a delinquent borrower could argue successfully in court that neither the bank nor the investor had legal standing to take the home as compensation for the unpaid debt.

"Arizonans could end up owning their homes for free," he said, adding that Arizona law does not allow other means of recovering the debt if the homeowners lived in the home.

But some local attorneys said it's unlikely the courts would take the drastic step of preventing or overturning foreclosures if it was clear that the borrowers had not repaid their mortgage debts.

Mesa attorney James Portman Webster said he believes the moratoriums are primarily aimed at helping Bank of America and other lenders rather than homeowners.

"It's to make sure they have good title" on properties up for foreclosure, he said. "It's not consumer-minded at all."

Borrowers and investors

Analysts believe that Bank of America will temporarily suspend foreclosures to prevent a backlog of bank-owned homes from accumulating. This could unintentionally help borrowers who have stopped making payments yet are still living in their homes. For many of these individuals, the payment-free periods could extend even longer.

"It's going to push back foreclosure dates," Webster said. "It's going to put everything on pause temporarily."

He said he has a few delinquent clients who have been living in their homes as long as three years while waiting for banks to seize their properties.

However, Arizonans who already have lost homes in foreclosure aren't likely to see any benefit from Bank of America's moratorium, Webster said.

Valley real-estate investor Alan Langston said his feelings about the moratorium were mixed.

"I feel good for the people that are in trouble with their homes and I want to make sure they are treated the way they deserve to be treated," said Langston, executive director of the Tempe-based Arizona Real Estate Investors Association.

"The other side of me is against anything that's going to delay the (real-estate) market from dealing with what it needs to deal with."

Langston said the sooner all pending foreclosures are completed, the sooner a housing-market recovery can occur.

Phoenix attorney Tracy Essig said he's hopeful the moratorium will provide an opportunity for banks to revise and improve their policies for dealing with distressed homeowners.

In particular, he hopes to see banks become more efficient by coordinating their loan-modification and collections efforts.Often, Essig said, struggling homeowners will miss payments, apply for a modification, then get foreclosed on anyway because the bank's modification and collections departments aren't communicating.

by J. Craig Anderson and Russ Wiles The Arizona Republic Oct. 9, 2010 12:00 AM



Bank of America stops sales of foreclosed homes