Peculiarly (and I’ll have to admit I’m among the guilty), a state-wide halt of foreclosures by a Bank of America unit in Nevada earlier in the week attracted remarkably little notice. The number of foreclosures in involved is meaningful, over 8000. The reason may seem somewhat technical, and presumably would not apply to other BofA units, namely, that the entity, ReconTrust Co, is operating without a proper business license. But then it gets interesting.
First, we get Bank of America’s position, per the Las Vegas Review Journal(hat tip ForeclosureFraud):
In a statement, Bank of America said: “ReconTrust previously faced a nearly identical order in Utah, and it recently prevailed in challenging that order in federal court. Until the current situation is resolved, ReconTrust intends to comply with the order.”
However, the judge believes ReconTrust’s problems may go much deeper than licensing:
In the order, however, the judge said there is a “substantial likelihood that (North) will establish that ReconTrust does not have any contractual privities with respect to the contract between (North) and the other defendants regarding the promissory note and deed of trust.”
The Washington Post (hat tip Lisa Epstein) has taken note of the case, and cites sections of Bank of America’s court filing seeking to reverse the foreclosure freeze, which will otherwise remain in effect until at least February 28, the date of the next court hearing. Perhaps I am reading too much into the language of the pleading, but the tone strikes me as a tad desperate:
In a court filing Wednesday obtained by the Las Vegas Sun, Bank of America says that Bank of America and ReconTrust are in compliance with Nevada foreclosure laws and that the borrower’s case will ultimately fail.
The bank also argues that the harm the injunction “caused to the public interest is overwhelming,” and quotes U.S. Treasury Secretary Timothy Geithner to support its case.
“Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging’ and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight,” the bank said. “The order also harms those subject to the foreclosure process because those individuals, especially those in mediation trying to stay in their homes, are now forced into a state of limbo for an unspecified duration.”
I have a sneaking suspicion that the views of Timothy Geithner don’t carry much weight in the Nevada judicial system.
Why the anxious tone? A couple of factors may be at work. First, recall how hard the banks fought the idea of a broad-based foreclosure freeze when the robo-signing scandal first came to light. And there are reasons why a blanket freeze is problematic, particularly if it extends to non-securitized loans (there are borrowers who want to get out from under a house they recognize they can no longer afford; a freeze can leave them on the hook). But at the same time, the banks have generally overstated the downside because the implications for them are unfavorable. And perhaps most important, an action like a wide-ranging halt is a reminder that banks are, or at least can be, subject to judicial orders, something they appear to have forgotten in recent years.
The second issue, is that Mr. Market has woken up to the fact that the Charlotte bank is particularly exposed to litigation risk. We were very critical of BofA’s purchase of Countrywide. As we said in January 2008:
Even with the reduction in the effective cost of buying Countrywide, Bank of America will come to regret this deal. Countrywide is an organization that has made an art form of just barely staying on the right side of the law, and even then screws up. There is certain to be more dirt, and therefore legal liabilty, that hasn’t yet risen to the surface. Furthermore, it is well nigh impossible to impose procedures and standards on rogue cultures. Look what happened to Bank of America when it purchased US Trust, a company that had a great franchise but one in which the account managers had more autonomy (and incurred more customer-related expenses) than Bank of America’s officers did. BofA succeeded in driving away the many of the best account officers, who took customers with them.
Now the cultural challenges of integrating a Countrywide are very different than dealing with a US Trust, but consider: US Trust was a highly valuable franchise in an area the North Carolina bank said was a priority, and they screwed it up just about every way they could. And US Trust was a much smaller organization too, so the acquisition should have been easier to manage.
BofA stock was off sharply early this week over worries about litigation risk, and those concerns were further stoked by an American Banker report that banks are slowing foreclosures in non-judicial states.
In other words, Bank of America would like to keep bad news about foreclosures to a bare minimum, but those pesky judges appear not to have gotten the memo.
Veterans who lose their homes to a short sale or a deed-in-lieu of foreclosure can now receive up to $1,500 in relocation assistance.
The VA has for years incentivized mortgage servicers to work with veterans on the edge of default. Now, the agency has directed its approved servicers to provide that cash advance to borrowers who use a deed-in-lieu of foreclosure or who complete a VA compromise claim to unload their short sale.
The directive went into effect on Jan. 6. Borrowers can use the money to cover moving expenses or to simply pay for lodging while they deal with the pending loss of their home.
"VA has a longstanding policy of encouraging servicers to work with veteran borrowers to explore all reasonable options to help them retain their homes or, when that is not feasible, to mitigate losses by pursuing alternatives to foreclosure," according to the two-page VA circular released on the subject. "These options generally provide a substantially better outcome than a foreclosure sale for borrowers, investors, and communities."
Borrowers won't receive that assistance as part of sale proceeds. The VA plans to reimburse servicers, who can secure a reimbursement up to the maximum VA guaranty along with any costs associated with resale.
The measure comes in part as a cost efficiency tool. Short sales and deeds-in-lieu of foreclosure take considerably less time and money to complete than the traditional foreclosure process. The odds are also better that the property will remain in good shape.
Servicers are expected to notify borrowers of their options regarding foreclosure.
Furthermore, the VA continues to push servicers to follow Home Affordable Foreclosure Alternatives (HAFA) procedures regarding potential short sales, mostly by halting any foreclosure proceedings while borrowers evaluate their options.
Despite the economic environment, VA loans as a whole continue to thrive in the face of foreclosure. These government-backed loans have the lowest rate of foreclosure among major lending programs, a staggering fact considering that 90 percent of VA loans come with no down payment.
VA officials continue to work hard to keep veterans in their homes. In fact, nearly 75 percent of the VA borrowers who defaulted in 2009 were able to avoid foreclosure.
A slightly different version of this article was published originally on OurBroker.com, a leading source of real estate, mortgage and foreclosure news and information.
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