Saturday, October 2, 2010

Robo-signing

Image ID 1152432 by Stock Exchange user macaruba (image credit, StockExchange user macaruba)

We’ve all learned a new word recently: robo-signing.

The Big 5 Banks* are holding off on foreclosure proceedings in lots of US states because the employees in charge of signing off on the foreclosure documents have admitted to robo-signing up to 8,000 documents per month without reading each.

Robo-signing and the moratorium on foreclosures, so far as I can tell, doesn’t apply in Arizona. Foreclosures continue in Arizona at their usual pace. Why?

All the states so far affected by the robo-signing scandal are judicial foreclosure states. Arizona is not. In a judicial foreclosure state, the lender must file a lawsuit in court against the homeowner to begin the foreclosure proceedings. Those filing documents are the docs that were robo-signed.

In Arizona, homeowners don’t sign a Mortgage so there is no need for the lender to file a lawsuit to begin a foreclosure proceeding. Arizona homeowners sign a similar but slightly different document called a Deed of Trust. It’s the same idea as a Mortgage, just with an extra party inserted into the process. It’s a threesome: there’s a borrower (homeowner), a lender and a Trustee. The Deed of Trust system works just like a mortgage except in the cases of foreclosure.

The Deed of Trust that Arizona homeowners sign allows the lender to skip filing a foreclosure lawsuit if the homeowner gets behind in their mortgage. The lender simply mails or delivers to the homeowner a document called a Notice of Trustee’s Sale (a “NOTS” or “NoTS”, i.e. a foreclosure). Usually the lenders issue a NOTS after 3-4 missed mortgage payments.

The NOTS is the only notice of their intent to foreclose that Arizona lenders are legally required to provide. It states that the homeowner has 90 days in which to bring the mortgage payments 100% current – including any fees, fines or legal costs – or the Trustee will sell the home at foreclosure auction. On Day 91, the home is auctioned off, unless the homeowner contacted the lender and made other, mutually agreeable arrangements.

Trustees are often attorneys and sometimes the auction takes place in their offices rather than “on the courthouse steps” as in some other states. At least in Arizona, lenders are frequently unable to sell the home to anyone at the foreclosure auction. In that case the lender takes the house “back” and usually lists it for sale in the MLS through a Realtor as an REO property.

We at The Phoenix Agents track REO listings to help us visualize the overall health of the local real estate market. Want to see our stats? Click on over, to <here>.

The Big 5 Banks are: Bank of America, GMAC, JPMorgan Chase, Citi and Wells Fargo. The Big 5 is just what I call them; it’s not a real thing. That I know of.