9 Million Homes Could Be Affected by the Foreclosure Mess

According to a recent Bloomberg article, the ongoing mortgage fiasco, dubbed foreclosuregate by some, could possibly entangle 9 million foreclosed properties with questions about the legitimacy of their title, the legitimacy of their foreclosure, or both.

In response to this debacle, JP Morgan Chase and GMAC/Ally have suspended foreclosures in 23 judicial foreclosure states.  Bank of America did them one better and suspended foreclosures in all 50 states.

Now we learn from the Bloomberg article that research from Morgan Stanley indicates that 2.5 million homes have been seized by lenders since 2005, and another 6.5 million are in or are about to be in foreclosure.  All of these properties could be affected.  Needless to say, this is a whole lot of property, and rendering it unsellable will have pretty dire consequences for the housing market.  Some title insurers are refusing to issue title insurance for some foreclosed properties, effectively precluding them from anything but cash sales, as lenders are not going to finance properties without title insurance.  

In the short term, removing some of the excess supply from the housing market could serve to buoy home prices, or at least keep them from declining further.  In the long run, these properties will come to market, and if they do so with unclear titles they will put even more downward pressure on prices than they would have otherwise.

Stay tuned to this blog for updates and further developments on the foreclosure bebacle.