Why does it take so long for a lender to foreclose?
Sometimes the answer to that question depends on where you live. In very large states like California, Florida, New York and Texas, the sheer volume of foreclosures will have a delaying impact on lender foreclosures.
Our fifty states each have different rules about how to bring a foreclosure case to court and some states skip court altogether and allow for a nonjudicial foreclosure. No matter where the property is located, lenders are all required to give notice to the delinquent owner and many try to work out payment arrangements before filing for a foreclosure. Some states require lenders to demonstrate that the borrowers are at least three payments or ninety days behind in their mortgage before taking legal action. In other states, however, such proof is not a requirement and in states with the most lender-friendly laws, lenders can evict a person and sell a home within ninety days of the borrower missing the first payment.
We all hear the grumblings that banks aren't foreclosing but what are some the reasons for those delays beyond the general assumption that lenders do not want underperforming assets on their books?
Some delays are caused by a pattern of borrowers missing some payments but making others. Lenders typically prefer to enter into a payment plan as opposed to taking on all the costs associated with a foreclosure, even an uncontested one. However, if the payment plan is breached, the lender will typically move forward but it could be months or years behind schedule thanks to the payment plan.
If the delinquent owner files for bankruptcy protection, all bets for a swift foreclosure action are off. The lender and all other creditors will be halted from any further foreclosure proceedings until the automatic stay period has passed. The bankruptcy court's proceedings may delay the lender's foreclosure for many months.
The bank may have such a backlog of foreclosure cases that it is some time before the lender’s agents are able to pursue a foreclosure against a particular borrower. Moreover, properties that can be easily sold will be the first targets of a bank foreclosure rather than those properties in less desirable areas or with little or no equity.
The lender may have trouble locating its orginal promissory note. In one case that gained notoriety, a retired Boca Raton CPA staved off a bank foreclosure for more than 8 years because his original promissory note was lost. Florida law says a person not in possession of a note must prove its terms and the right to enforce it. Frankly, that can take some time to do if you find yourself in the precarious position of not having the note which forms the basis for your foreclosure action!
More and more borrowers are finding the funds needed to pay mortgage defense attorneys to keep a bank foreclosure on hold for years (see the example discussed above)! These mortgage defense attorneys will look for holes in the bank's action and there are plenty to be found. Remember that huge stack of mortgage papers that you signed on the day you bought your home? If the Truth In Lending Statement contained inaccuracies or there were other RESPA violations, that can be just the angle a defense attorney needs to put the bank foreclosure on hold or permanently derail it. Moreover, given the "robo signing" scandal and the subsequent collapse of several law firms that handled massive volumes of bank foreclosures, defense attorneys are now digging deeper into the documents use by lenders to foreclose and even scrutinizing the credentials of the folks preparing and signing those documents.
The foregoing highlights the ongoing hurdles (some self created and others beyond a bank's control) which are delaying, stalling and derailing bank foreclosures. Some of the banks we have seen with the biggest problems in this regard: Bank of America, Countrywide, Wells Fargo, Wachovia, IndyMac, Citi Mortgage, Chase, GMAC and OneWest.