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One of my agents sent me an email yesterday asking if I knew why so many Recon Trust (Bank of America’s foreclosure arm) foreclosed properties had disappeared from the multiple listing service.  I hadn’t a clue, but said I’d ask around.  I’m in Las Vegas doing some training in advance of the RE/MAX International Convention, where lots of mucky mucks will be gathering shortly.  Including some folks from Bank of America, as RE/MAX does a lot of business with them. 

Yesterday evening this article popped up on Oregon Line, the Oregonian’s on line service, which at least answered some of that question.  Kind of.  In the past several months we have seen court imposed restrictions on selling foreclosures until certain questions or issues are worked out, such as the “robo signing” of foreclosure papers that was happening in Florida.  We’ve seen banks issue their own moratoriums on foreclosures  for an amount of time to assure they aren’t running afoul of laws and policies.  And we seen government imposed foreclosure moratoriums on the act of foreclosing. 

What is new to me are two things.  First, this is a self imposed action, seemingly on selling the foreclosed properties, as opposed to the act of foreclosing.  And second, there wasn’t some public edict or announcement, the properties were just pulled off the market, more than 300 in hard hit Deschutes County alone.  And, okay, this is a third thing, Bank of America also pulled some number of foreclosure notices being filed on homeowners.  wow.

The conditions leading to this are numerous, and do have some origin in the courts.  Most stem from the Mortgage Electronic Registration System. Before its inception in the mid-1990′s, the buying and selling of mortgages on the secondary market was traceable through the recording of legal documents, usually in the county in which a property is located.  So if a home loan were sold multiple times, it was there for all to see in the public records.   The invention of mortgage backed securities gave rise to a need, on the bank’s part for a more streamlined system, and of course was a good way to avoid all those pesky recording fees, an the public really didn’t need to know all about who owned what anyway.

According to the Oregonian article, ” A  B of A spokeswoman said the bank was canceling certain sales to ensure that those homeowners had fully explored options to avoid foreclosure.”  Which leads to another thought.  Congress has been looking at the different programs the Obama administration has put in place in an effort to help distressed homeowners, and one of the big criticisms of the programs has been that most short sale and loan modification “workouts”  are being done by and under the judgement of the banks themselves.  Audits have shown banks to be less than responsive, arbitrary and to lose homeowner paperwork ALL THE TIME.

It sounds as though Bank of America has wisely seen the myriad of issues with many of these loans (and we aren’t even talking about whether or not these loans should have existed or been made in the first place), and is choosing to slow down the frenzy.  A wise idea.

Oh yeah, and add in that, per the Oregonian article, “First American Financial Corp., one of the nation’s largest title insurers, began warning lenders and buyers in title documents that it wouldn’t insure titles with a cloudy public record in Oregon, company attorney Alan Brickley said. “It’s simply saying we have a concern, and you should have a concern,” said Brickley, who’s based in Portland. ”.

That is big.  That says, there is enough question about the foreclosure process that the titles to foreclosed properties may not be considered clear enough to qualify for title insurance.  Without title insurance, most lenders won’t issue a new loan to a new purchaser, making those foreclosed properties nearly unsaleable.

I’m sure glad I don’t have any buyers under contract to purchase properties banks have foreclosed on!