The Foreclosure Document Controversy – What It Means For Buyers

Buying a foreclosed home on the market today can be a very good value. But there are also issues involved with foreclosed homes. Banks have admitted to signing thousands of foreclosure documents without proper review. Due to this recent foreclosure document controversy, those who are thinking of buying a foreclosed home and those who already have bought one are now wondering what the foreclosure scandal might mean, and if the house they bought is technically theirs or not.

Lenders who have stopped foreclosures on homes in 23 states include JPMorgan Chase, GMAC Mortgage and Bank of America. The lenders are investigating the possible problems in foreclosure document processing. Some companies signed court documents without reviewing the individual cases, causing some title companies to stop issuing title insurance on those lenders’ home sales.

Real estate experts have mixed feelings on the impact of the title controversy. Some believe the foreclosure fiasco is only a technicality, and the homes would have been repossessed anyway. Others think that foreclosure backlog will increase and limit the supply of homes for sale, thereby delaying real estate market recovery.

Buyers need title insurance

If you bought a home that was in foreclosure, you may well be wondering if it was seized and resold without proper oversight. You may wonder if you actually own the home, or if the former owners still technically own it.

Real estate attorneys say that the probability of losing your home based on improper paperwork is small. If you have title insurance, experts say, you should be all right. Title insurance covers the homeowner in just such a case. The title insurance policy pays any costs of defending your claim to the home, and will reimburse the value of your home if you lost the claim. Even so, it is very unlikely that a court would overturn a foreclosure on a technicality.

The exception is buying at foreclosure auctions. There, you are on your own. You can’t do a title search on an auction property, and you can’t buy title insurance until after you’ve purchased the home. So you may find that someone has a legitimate claim to the house, or that you may not be able to buy title insurance after the fact. If you are the average home buyer, it is likely you do not have the knowledge needed to understand the paperwork that came with your home purchase. It may look all right on the surface, but later, you may have a problem.

If you buy a foreclosed home from an investor who bought it at an auction and resold it, you are in a position to insist on title insurance from the seller. That way, you can be sure the title has been researched and you have a policy stating that it has no problems stemming from the foreclosure process.

If you feel you must speak with a lawyer about your foreclosure purchase, be sure to find one who is an expert in real estate and title insurance law.