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Foreclousure Mess

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Just some quick thoughts on a big housing issue this week.

The decision by banks to halt many of the foreclosures in a number of states and the whole country will have a chilling effect on the already fragile market. This delay will stretch this mess out for another year or two. The longer the glut of distressed homes stays on, or just off, the market, the longer it will be before stability returns. It also brings into the mix yet another element of uncertainty for buyers and sellers.

Title insurance companies must also be spooked because lawyers will begin to question who actually owns the home and if the lender has a right to foreclose. And what about the people who recently purchased a foreclosed home? What if their new home was foreclosed by one of these banks? What happens to their purchase? Do they have ownership rights to their home? It can really turn into a mess bigger than it currently is.

Until this process is corrected, I believe many potential buyers and investors are just going to sit on the sidelines and wait to see what happens. Heck, prices may come down even more in six months. Unfortunately, this trickles up to the non-foreclosed segment of the housing market.

But I keep coming back to this: There may have been mistakes made or shortcuts taken by the banks in the foreclosure process (very lengthy, complicated and different from state-to-state) but ultimately the buyers entered into a contract with the bank to pay the mortgage. By not living up to their agreement, should they be rewarded because the bank made processing errors?

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