If you have been following the news over the past few weeks, the process of banks foreclosing on homes has changed rapidly.  Let me see if I can make sense of the news lately. 

 

Over the past few years given the economy, there has been a large increase in the number of homes that are facing foreclosure.  Banks have had a difficult time keeping up with the volume.  In fact, the larger the bank, more specifically, the more home loans they wrote, the more difficulty they are having.  In response to the increased volume of foreclosures, several large banks including BofA resorted to hiring  what the media is calling "robo signers".  These people were glorified paper pushers who signed approvals for sometimes hundreds of foreclosures per day without reviewing them thoroughly.  As a result may important details were sometimes missed. 

 

Most importantly, in a significant number of foreclosures the title was not transferring to the bank.  The bank was then turning around and selling these homes only to have the new buyer find out that title wasn't clear and they couldn't close on the house.  As you can imagine, this is a bit of a frustration if you are moving toward close and then find ouit you can't buy the home. 

 

In recent weeks this problem has come to light.   It is important to note that this was a problem only in judicial foreclosure states.  I'll spare you the details but a judicial foreclosure state requires court intervention for the foreclosure to go through.  Washington IS NOT a judicial foreclosure state.  The problems with title were not happening in the state of Washington. 

 

In response to media coverage of the issue and being gun shy from so much bad publicity over the past few years, BofA went ahead and suspended the sale of all of their bank owned homes in all 50 states.  They did not however discontinue pursuing foreclosures which is where the problem lies. 

 

For the next few weeks BofA will continue to foreclose on homes in all 50 states, but not sell them.  This should create a bit of a glut in the market which may effect prices, when the back log of inventory comes back on the market.  The longer the delay in selling of bank owned homes, the worse the effect will be.  

Why BofA doesn't stop foreclosing has to do with the time line it takes to foreclose.  Still the effect will be felt in all 50 states.  Given the size of BofA it could be quite the effect if the time it takes to come up with a solution drags into months. 

 

Stay tuned, this story gets more complicated weekly.