Housing and mortgage trends in early 2011
Handing over house keys
What delays a mortgage foreclosure

  • Lenders securitized and sold many of their loans to investors, whose objectives may conflict. One investor may want to foreclose quickly and take the cash, Sharga says, while another might want to keep the loan and pressure the borrower to resume the payments. Disagreements lead to process paralysis.
  • Lenders may be especially unwilling to negotiate settlements with borrowers who own expensive homes and are believed to have fraudulently hidden other assets in offshore bank accounts, Olefson says. "The banks are a lot less likely to settle because their feeling is that (the borrower) has assets somewhere or will have assets," she says.
  • A rumor, whether true or not, that the Federal Deposit Insurance Corp. may take over a lender can cause disruptions and delays, Olefson says. Lenders, investors and borrowers alike tend to think they'll get a better loan workout deal if the government agency steps in, but that's a "complete misconception," she says.

The borrowers

Years ago, foreclosures usually were uncontested, but today, homeowners are more likely to hire a foreclosure attorney to stall the outcome, Olefson says.

"Foreclosure used to be a one-sided deal," she says, "but now, we have borrowers' defense counsel out drumming up business."

Bankruptcy and other court filings can delay a foreclosure, but such actions may be costly for the borrower. Default interest, force-placed insurance, property taxes and legal fees can all end up on the borrower's account, and may be subject to a deficiency judgment in some states.

"Until that summary judgment is issued, and there is a foreclosure sale, the borrower is responsible," Olefson says.

Mortgage borrowers who want to speed up a foreclosure are mostly out of luck. Unless the lender is willing to approve a short sale or accept a deed in lieu of one, the process must move forward along its own long, slow course.

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