10/18/10

Homeowners Limbo !?

Via: The Wall Street Journal/Digital Network

David Stiles was minutes away Tuesday from seeing his house sold in a foreclosure auction when he got a surprise phone call from his lawyer.

"I've got good news," said his lawyer, Pamela Simmons. GMAC Mortgage, which loaned him $333,700, had called off the sale. The reason: The lender decided to review its foreclosure cases because of mounting industrywide concerns about shoddy procedures used in document preparation.

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Across the U.S., the mortgage mess is deepening the anxiety and uncertainty swirling around homeowners who are facing foreclosure. Foreclosure is already a slow process, but the decision by lenders such as Bank of America Corp. and J.P. Morgan Chase & Co. to halt most or all foreclosure sales and internal scrutiny by other financial institutions likely will keep many troubled borrowers in their homes for weeks or even months longer.

The decision by GMAC, a unit of Ally Financial Inc., means that Mr. Stiles and his two teenage sons can stay in their three-bedroom home, surrounded by redwood trees in California's Santa Cruz Mountains. Still, the foreclosure sale is set to proceed Nov. 18.

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"I'm grateful that I have some extra time so I can make a decision of what to do," says Mr. Stiles, 50 years old, who hasn't paid his $2,700-a-month mortgage since February. He left his job as a project manager for a construction company because he has Parkinson's disease.

A GMAC spokeswoman wouldn't comment on Mr. Stiles's case. She says the lender is conducting additional reviews before proceeding with any foreclosure sales.

So far, there are few signs lenders and servicers will undo substantial numbers of the foreclosure proceedings being reviewed across the U.S. No one has been "evicted out of a home who shouldn't have been," James Dimon, J.P. Morgan Chase's chairman and chief executive, said in a conference call last week.

Wall Street analysts generally are taking a similar view, saying the halts in foreclosure sales are likely to cause little financial impact on banks in the long run. "Sorry, no free houses," wrote Glenn Schorr, an analyst with Nomura Securities International, in a research report to clients Friday.

Americans for Financial Reform, a group of consumer, investor and small-business organizations, on Friday called for a temporary moratorium on foreclosures, saying there should be a new process ensuring lenders are following the rules.

"It is the lenders' and servicers' own actions that have now created overwhelming uncertainty in the system," said a statement from the Washington-based group.

Mark Stopa, a Florida lawyer who represents homeowners in bankruptcy proceedings, says he has received many inquiries from clients about the sputtering foreclosure machine. "I am telling them that there is some uncertainty about the impact," he says.

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Rebecca Townsend, Credit: Peter Newcomb for The Wall Street Journal Rebecca Townsend

Rebecca Townsend: 'I want to see if there's any hope for me.'

In Wood River, Ill., Rebecca Townsend is scheduled to be back in court on Thursday for the foreclosure case on her house, just down the street from where she grew up. She hasn't made the $800-a-month mortgage since 2008 because she can't afford it.

HSBC Bank USA filed a foreclosure lawsuit against Ms. Townsend in 2008. The unit of HSBC Holdings PLC dropped the case and then refiled it last year.

A spokesman for HSBC declined to comment on Ms. Townsend's case but said that "whenever such concerns are brought to our attention, we will always take another look to ensure correct procedure has been followed."

Ms. Townsend hopes Thursday's hearing will be canceled but isn't sure that postponing it would have any effect on the ultimate fate of her house.

"I don't understand 95% of this stuff, but I want to see if there's any hope for me," says Ms. Townsend, 47, who lives with her two children and 86-year-old mother.

Susan Reboyras, co-owner of an attic-restoration company in St. Petersburg, Fla., hopes the holding pattern on foreclosures will help clear up some of the confusion about who holds the mortgage on her house, which has bounced among several servicers.

"The house isn't worth the money they want, but it's my house and I want to keep it," says Ms. Reboyras, who fell behind last year on her $1,800-a-month mortgage payments. "I think we should be able to come to some sort of resolution because I want to pay the proper parties."

Citigroup Inc.'s mortgage division began foreclosure proceedings against her last year, although there are now indications the mortgage has been sold to another company.

The New York bank hasn't imposed a foreclosure moratorium. In a statement, Citigroup says it "continuously reviews document handling in our foreclosure operations, and we believe the integrity of our process is sound."

Write to Robin Sidel at robin.sidel@wsj.com

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