Robo-signers put REO industry on hold
As the moratorium on home foreclosures expands to more and more states, REO brokers say their business is being put on hold. The biggest lenders and servicers nationwide put a large obstacle between brokers and the ability to sell REO property when recent robo-signer allegations exposed questionable practices regarding the foreclosure affidavits. Now that banks are revisiting those foreclosures, to check for errors, brokers are literally paying the price. They cannot currently list foreclosed properties nor close pending contracts on those houses, as the banks will not allow it during the review. One REO agent in Palm Coast, Fla., told HousingWire several sales for properties serviced by Ally and BofA (BAC) have been canceled. No timeline for relief has been given, she said and everyone is waiting on instructions on what to do next. "It's killing us," said Mike Wallace, broker owner of ReMax Real Estate Group in Rocky River, Ohio. "We have people in contract ready to close, ready to move into houses, and the deals are being canceled." Wallace said that because of the recent moratoriums from Ally Financial, formerly known as GMAC, JPMorgan Chase (JPM) and Bank of America, his firm has lost about 70% of its sale inventory. This means he also has to hold on to the houses and upkeep them while they are vacant. "Foreclosed properties on hold means there's more utility bills, additional lawn mowings, more property care, and that drives expenses up especially as the volumes go up," said Brad Trapnell, vice president of Client Relations and Development at Energy REO Solutions, a property preservation company based in Minnesota. "It could potentially mean more money for property preservation companies." Robert Klein, founder and chairman of property preservation company Safeguard Properties, adds the longer a home stays vacant, the more the value and condition of the property depletes. "I don't care how much property preservation you put in, a vacant property is going to deteriorate." Klein said vacant homes are more prone to vandalism than occupied homes, and the vacancy status drives down local market value. But the big question on everyone's mind is how long the current moratorium will last and how much worse business will get. Joshua Bazzetta, a broker with Solid Source Realty in Atlanta, Ga., said it's too early to tell how the foreclosure recall is going to affect his business. Georgia is not one of the 23 states that deals with foreclosures through the court, so he said that it's business as usual for the time being. He said his firm is still picking up cases from JPMorgan Chase. "It honestly hasn't affected us," Bazzetta told HousingWire. "I don't think it will be such a bruise to the market because there's still a lot of backlog of REO properties. In the long term, it could cause internal problems." Trapnell, of Energy REO, predicts the moratorium won't have a distinct impact if the robo-signing issue is dealt with quickly. "One month or two or three even, I wouldn't foresee any major issues in terms of cash flowing and volume," he said. "But if you're talking about something more than 90 days, six months or longer, its going to be a lot more challenging." Write to Christine Ricciardi. Jon Prior contributed to this piece. Disclosure: The author holds no relevant investments.