News releases in recent weeks have increasingly unearthed irregularities in the foreclosure process, disclosures which have far-reaching effects on first time and move-up buyers of Chester County real estate, those in the process of foreclosure, the real estate market, and the economy in general. In reaction to these reports, Ally Financial, JP Morgan, PNC, Morgan Chase, and Bank of America have temporarily halted all action on foreclosures, and nearly half of the states have issued a foreclosure moratorium.

dominoThe National Association of Realtors (NAR) has long urged lenders to seek resolution to distressed properties through modification and short sales rather than through foreclosure, stating that “These options are far better” and that they involve less risk of irregularities caused by the impact of dealing with such a high volume of foreclosures and heavy demands by lenders for speedy processing, In a recent letter to various federal agencies, the NAR expressed both concern for the rights of borrowers and the buyers of Chester County real estate and the hope that the foreclosure review will proceed expeditiously.

Reacting to a demand by some for a national moratorium (which many feel is inevitable), the White House called for caution in taking such a step and acknowledged that there are valid foreclosures with proper documentation that should go forward. White House spokesman David Axelrod also placed some of the responsibility for the “title wave” on government-run Freddie Mac and Fannie Mae, stating that “…if they had slowed down their loan purchases using internal controls, many of these problems would not have occurred.”

So what does all this mean for the purchaser or would-be buyer of Chester County real estate? In all probability, closings and contract purchases on distressed properties will not take place until all moratoriums have been lifted. It also means that foreclosures already in process will be held up and that some bank-owned listings will be removed from the market. Some “experts” say that those who have already purchased a foreclosed home will not have problems because of the legal finality of foreclosure sales, while others worry that that the moratoriums will bring most mortgage closings to a halt. All seem to agree, however, that properties which do have clear mortgage documentation will demand a premium price in what will be smaller supply of homes from which to choose.

Obviously there is no imminent solution to the current foreclosure fiasco, and the wise and prudent buyer would do well to follow the situation carefully, proceed cautiously, and seek professional advice before making a commitment.