Sunday, December 4, 2022

Foreclosure moratorium will not help home default situation

I want to take a moment to bring you up to date on what has been happening in the news regarding foreclosures and to put the situation into perspective for those of us in Texas.

This past Monday, four of the nation’s biggest lenders temporarily halted foreclosures in 23 states.  These lenders were responding to the news that employees of some mortgage servicers had signed hundreds of affidavits each day without reviewing the foreclosure documents.  In response to the disclosure of issues with “robosigners,” judges in Florida and a few other states started tossing out foreclosure cases.

Let’s start with the fact that there is a fundamental difference in the foreclosure process in Texas versus those 20+ states that the four big lenders placed on hold.  Those states have a judicial foreclosure process, which requires a bank to file an action in court against a homeowner once they have missed a certain number of payments. The court’s judge will typically assign a date for the seizure and sale of the property, unless the bank and borrower agree on a loan modification.  As you can imagine, a mound of paperwork is created and generated for the judicial foreclosure process. This has fueled the birth of the “robosigner.”

In Texas, however, the foreclosure process is a non-judicial process regarding delinquent mortgages.  While there is still a lot of paperwork, the volume of paperwork for a non-judicial foreclosure is less than a judicial foreclosure.  In addition, the non-judicial process in Texas takes only 21 days from the deadline to file the foreclosure posting notice at the courthouse to the day of the foreclosure auction.  In some judicial states, we are seeing the foreclosure process take as long as 400 days or more.

Bottom line, I did not expect this temporary halt by four of the big lenders to impact the foreclosure rate in Texas, since we are a non-judicial state.

On Tuesday, however, the Texas Attorney General’s office succumbed to pressure by sending a demand letter to 30 mortgage banking and servicing institutions asking that they immediately “suspend all foreclosures, all sales of properties previously foreclosed upon, and all eviction of persons residing in previously foreclosed upon properties” until these institutions have taken eight specific steps to solve possible errors in mortgage documentation.  These steps include the following:

1. Identify all employees or agents who “robosigned” affidavits and other documents which were recorded in the State of Texas;

2. Identify all foreclosures in the State of Texas in connection with which an affidavit or other document with the characteristics listed above was used as part of the foreclosure process;

3. Describe the measures taken by the lender to ensure that affidavits and other documents are executed in compliance with Texas law;

4. Describe the measures taken by the lender to comply with the Servicemembers Civil Relief Act in connection with foreclosures;

5. Identify all other loan servicers and/or MERS for whom the above described employees or agents signed affidavits;

6. Provide assurances that all of the lender’s foreclosures of properties in the State of Texas which relied upon documents with the characteristics described above will be rectified and the procedures by which they will be rectified;

7. Provide assurances that all of the lender’s future foreclosures of properties in the State of Texas will be done with legally correct documentation; and,

8. Identify all of lender’s employees or agents who are or who signed as officers of other non-related entities.

It is my understanding that a “demand letter” does not have the force and effect of the law.  However, the letter can describe possible future legal actions against the recipient of the letter if the recipient does not comply.

Right now, we do not know how these 30 individual banks and servicing companies will respond.  We are in a wait and see mode.  But, it seems clear to me that all the lender must do to be able to foreclose as usual is to complete these eight steps by October 15th.  Simply put, the longer the lender takes to complete these eight steps, the longer it will be until that lender can foreclose.  I believe that most of these lenders will want to get past this as quickly as possible, which means completing the eight steps as soon as possible. 

The demand letter prompts for a response to be received on or before October 15th, which is well in advance of the next round of Texas foreclosure auctions set to take place on November 2nd. 

Nowhere did I read that a complying lender will be unable to “post” a property for a future foreclosure auction. 

In fact, at this time, I do not see any weakening in the rate of postings filed for the upcoming November foreclosure sales.  The volume of early postings already filed for the November 2nd auctions remains at about the same level it was at this time last month.  Early postings are already on our website at; and, as you hopefully know, postings for November will be added daily to our website from now through next Wednesday evening.  So, at this time, we are on track to have another big month of foreclosure postings.

I am saddened to hear any story of a mismanaged foreclosure and its impact on the family that lived in or owned the home.  At best, the Attorney General’s demand letter may lead to a tighter, more carefully reviewed foreclosure process throughout the whole nation, not just in Texas.

The reality is that fine tuning a lender’s game plan is not going to make someone’s delinquent mortgage payment.  In Texas, if a home is posted for foreclosure, the loan payments are already significantly delinquent. 

Based on many conversations with economists, politicians, lenders, etc. over the past few days, I believe that foreclosure postings will continue at the current pace or very near that level during the coming days in Texas.  So, for those of us involved on the “posting” side of the equation, it should be business as usual or very near it.

Some of you may recall previous moratoriums over the past few years.  Looking back, those moratoriums had very little effect on the volume of foreclosure postings filed during that time.  What we did see were monthly posting levels that remained where they were prior to the start of the moratorium, or very close to that level, followed by a huge spike in postings that led to the current high level of this foreclosure cycle.

George Roddy, Sr.
President, Foreclosure Listing Services, Inc.
Addison, TX

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