Confused about foreclosure "freezes" by BofA, etc.

[Bienes Raices]

I was under the impression that the "freeze" by numerous large banks would affect preforeclosures, delaying them from going to auction until the paperwork is re-checked. But then I heard on news radio that would-be owner occupants with nowhere to live because they cannot close on the REOs they were under contract on, due to the freeze. Does anyone know what the real story is?

[Jon Holdman]

I do think the concern here stems from the possibility that former owners may have a claim on the property. Old Republic National Title Insurance Company stopped insuring GMAC and Chase REO sales. No title insurance, no closing. A NY Times article in today's paper discuss this issue. According to the article, its not entirely clear how a case involving a former owner claiming the house is still theirs would pay out. Regardless of the details, though, the title company would be the one on the hook. Certainly they could at least try to sue the bank that caused the problem. But that puts the title company in the unenviable position of suing the same guy who's going to continue to send you work.

This could turn into an ugly mess if every foreclosure and REO transaction since the start of this crisis gets re-examined.