Concerns Over Lenders' Use Of "Affidavit Slaves" In Foreclosure Actions Now Threaten To Jam Up Resales Of Bank-Owned REOs

In Palm Beach County, Florida, The Palm Beach Post reports:

• The revelation [...] that tens of thousands of Ally Financial Inc.'s GMAC foreclosures may have flawed court documents not only has implications for some of the nation's largest mortgage companies, it could strangle the resales of bank-owned homes. Attorneys are warning that title insurance companies may reject foreclosed properties for fear of future challenges to the procedures used in repossessing those homes.

• Already, one Boca Raton real estate attorney said she has seen title insurance refused on a foreclosed property where the case was handled by one of Florida's massive foreclosure law firms. The firm is one of four under investigation by the state attorney general for allegedly mishandling documents in a rush to move thousands of cases through the courts. The reason for the title insurance denial: defects in the foreclosure.

• "I think that the underwriting community - all of the title companies - are going to be looking at sales after foreclosure very carefully in light of the GMAC freeze," Boca Raton attorney Marlyn Wiener said. "If the underlying affidavits signed by the bank representatives were false, then the whole foreclosure is suspect."

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• How title insurers will take on that kind of legal risk is an industrywide question, said Norwood Gay, chief legal officer of Attorneys' Title Fund Services LLC in Orlando. "This has got more arms and legs to it than you can count," Gay said. "I don't know that there is any definitive industry policy because, frankly, it's all too new and too inconclusive."

For more, see GMAC troubles threaten to halt foreclosure sales.