J.P. Morgan Chase to stop foreclosures

by Gary and Lisa Schoeffler on October 1, 2010

in Real Estate News - Hot topics, Short Sales

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Have you heard the buzz about Chase Bank stopping Foreclosure?

Since we received more than one phone call yesterday asking what we had heard about Chase Bank stopping foreclosures, we are posting this information for your review.  We have pulled information from several sources.  It appears to be immediately affecting judicial foreclosures in process, however it will almost certainly have a trickle down effect as the pipeline is filling up behind the stoppage.  California is primarily a Non-Judicial foreclosure state,  however, California is one of four states calling for a suspension on all foreclosures initiated by Ally Financial . It will be interesting to see how this unfolds.

What is the difference between Judicial Foreclosure and Non-Judicial Foreclosure?  California is primarily a non-judicial foreclosure state.

Each state in the U.S. handles it’s real estate foreclosures differently, it’s important to understand those differences and know your specific state’s procedures. The terms used and time frames vary greatly from state to state, but the following information provides a general overview of the different processes and considerations. If you haven’t done so yet, you can review our guide to each state’s procedures at foreclosure procedures.

Judicial Foreclosures

Judicial foreclosures are processed through the courts, beginning with the lender filing a complaint and recording a notice of Lis Pendens. The complaint will state what the debt is, and why the default should allow the lender to foreclose and take the property given as security for the loan. The homeowner will be served notice of the complaint, either by mailing, direct service, or publication of the notice, and will have the opportunity to be heard before the court. If the court finds the debt valid, and in default, it will issue a judgment for the total amount owed, including the costs of the foreclosure process. After the judgment has been entered, a writ will be issued by the court authorizing a sheriff’s sale. The sheriff’s sale is an auction, open to anyone, and is held in a public place, which can range from in front of the courthouse steps, to in front of the property being auctioned. Sheriff’s sales will require either cash to be paid at the time of sale, or a substantial deposit, with the balance paid from later that same day up to 30 days after the sale. Check your local procedures carefully. At the end of the auction, the highest bidder will be the owner of the property, subject to the court’s confirmation of the sale. After the court has confirmed the sale, a sheriff’s deed will be prepared and delivered to the highest bidder, when that deed is recorded, the highest bidder is the owner of the property.

Non-Judicial Foreclosures

Non-judicial foreclosures are processed without court intervention, with the requirements for the foreclosure established by state statutes. When a loan default occurs, the homeowner will be mailed a default letter, and in many states, a Notice of Default will be recorded at approximately the same time. If the homeowner does not cure the default, a Notice of Sale will be mailed to the homeowner, posted in public places, recorded at the county recorder’s office, and published in area legal publications. After the legally required time period has expired, a public auction will be held, with the highest bidder becoming the owner of the property, subject to their receipt and recordation of the deed. Auctions of non-judicial foreclosures will generally require cash, or cash equivalent either at the sale, or very shortly thereafter.

It is important to note that each non-judicial foreclosure state has different procedures. Some do not require a Notice of Default, but start with a Notice of Sale. Others require only the publication of the Notice of Sale to announce the sale, with no direct owner notification required. You need to know the specific procedure for your state.

via The difference between judicial and non-judicial foreclosures.

Here Is What The News Reports Are Saying:

Wednesday, J.P. Morgan Chase, one of the nation’s leading banks, announced that it will hit pause on foreclosures in approximately half the country due of faulty paperwork. Wall Street analysts said that the move will pressure the rest of the industry to follow suit.

The bank’s verdict will affect 56,000 borrowers in 23 states where claims of forged documents and signatures and other similar problems are being used to try to overturn evictions. But the impact may be much broader, given J.P. Morgan’s standing in the industry. The foreclosure process in many parts of the country will grind to a halt if other banks adopt the same approach.

Officials at Fitch Ratings, a credit-rating, said the “defects” seen in foreclosure documents at J.P. Morgan are industry-wide. Highlighting that concern, Fitch said it is considering whether to lower the grades it gives to the mortgage servicing divisions of the nation’s largest lenders.

Fitch managing director, Diane Pendley, said

“Over the next few weeks, we expect to see more and more companies come out with similar announcements.”

The paperwork problems at J.P. Morgan reflect those exposed last week at another large mortgage lender, Ally Financial. But J.P. Morgan’s decision is likely to have a much more effect on the industry as it is held in high regard by its peers. In contrast, Ally, still unstable with a $17 billion federal aid package that it has been unable to pay back.

Both firms are looking into whether foreclosure files were inappropriately assembled, and if their employees failed to review the documents even as they signed off on them. A growing number of homeowners, even those who missed their mortgage payments, are now rushing to challenge the proceedings, weighing down an already overburdened court system.

J.P. Morgan had refused to address the matter until Wednesday but in a sworn statement, Beth Ann Cottrell, one of the bank’s workers, confessed that she and her team signed off on about 18,000 foreclosures per month without checking if they were justified.

Wednesday, J.P. Morgan spokesman, Tom Kelly, said that the firm

“does not expect to find any factual problems or that customer have been harmed, but if we do find any cases we will take appropriate action.”

Aside from the measures that private lenders have taken, four states California, Colorado, Connecticut and Illinois have called for a suspension on all foreclosures initiated by Ally, as attorneys general in seven other states have opened civil or criminal investigations related to faulty foreclosures.

The Treasury Department has declined to answer specific questions about the matter since it surfaced last week despite the extent of the problems has become more apparent.

On Wednesday, Treasury spokesman Mark Paustenbach said that officials have been communicating with Ally and that they anticipate it to take “prompt action to correct any errors.” He added that the agency is “monitoring their progress.”

Treasury officials personally raised the issue with Michael Carpenter, Ally chief executive, during a recent meeting, said an administration official.

But the agency’s response has discouraged some consumer advocates. A few lawmakers have also called for investigations of whether homeowners are being improperly removed from their homes.

Wednesday, Sen. Al Franken said that the Treasury Department and other federal agencies must start their own inquiry.

He said, “With millions of families losing their homes, it’s inexcusable for companies like Ally to be this patently negligent…I want the federal government to hold Ally accountable and ensure that homeowners who wrongly received foreclosure get the compensation they deserve.”

via J.P. Morgan Chase to stop foreclosures | Ffog.net.

The AP buries the lede with new information about why large lenders have stopped dead: the rating agencies threatened action.

Fitch Ratings said that Wednesday it was asking mortgage companies about their internal processes for executing foreclosure affidavits. If it finds the processes lacking, Fitch will consider downgrading the company’s rating.

The agency also said if the issue is widespread, the resulting delays and extra costs to foreclose could increase losses related to residential mortgage-backed securities.

via 56,000 Foreclosures in Limbo as JPMorgan Chase Reviews Documents | FDL News Desk.

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