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by Howard Bell

If you bought a foreclosed property….

real estate investingRealtyTrac reports that 3Q foreclosure filings are up 4% from last quarter but down 1% from 3Q 2009. That translates into 1 of every 139 homes received a foreclosure filing this quarter.
Foreclosure sales continue to dominate supply with REO and pre-foreclosure sales totaling 31% of all home sales.

And the banks are screwed too.

For the first time bank repossessions topped 100,000 in a single month up 7% over quarter.

Title insurance protects you if someone comes back even years later and claims that they actually hold title to the property you bought in foreclosure.

What if someone who lost his home in foreclosure wins it back because of sloppy paperwork? You might not get to keep the foreclosure purchase. There might not be any monetary loss because that’s why title insurance exists, but you can see how the uncertainty can kill the market.

Sales of pre-foreclosure and foreclosed properties, 31% of all sales, can dry up and distressed property inventory just grows.

The Optimists Real-estate procedure requires the physical transfer of paperwork whenever mortgages trade hands. Some are questioning whether banks have lost or never had physical possession of the mortgage. If so, banks will have to track down and refile paperwork. If this is the full extent of the problem then it will slow the process and inventory will build, but ultimately little damage will be done. This, of course, is what the banks are claiming is the extent of it.

The Pessimists

What if, instead of being lost and then found and properly refiled, mortgage documents were never properly transferred during each step of the process, then the whole system freezes. The law suits that cascade down on the heads of industry would claim that the banks never technically and actually owned the mortgages and cannot foreclose – that they foreclosed with defective documents and the whole thing’s illegal.

If you bought a foreclosure home, your title and ownership of the property could be clouded now, title may be in question. If you’re looking to buy a foreclosed home, the purchasing process may be delayed. And you may have difficulty getting title insurance.

Howard Bell PFP CCRM is the founder/editor of Your Property, featuring over 450 articles on property management, Your Property Path SF, trade talk for the San Francisco real estate industry, Your Property Path News Brief, snap news updates and real estate market info, and Your Property Path Amazon Store. Howard is a property manager in San Francisco and holds a certification in financial planning.

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  • Gary Carlson

    The mortgage deed is usually filed with the Clerk of Courts. Why not file the Promissory note as well? Wouldn’t this solve the problem of lost “paperwork”?

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