Sam Gendusa April 26, 2016

Newsletter - April 2016

Back in May of last year, we wrote a newsletter that investigated the issue of statues of limitations litigation and the potentially disastrous effects it could have on banks and servicers (and by extension the mortgage industry) should the courts come down on the side of the borrower.

You can read that article in full here, but this is the gist: Some attorneys claim that statutes of limitations apply to mortgages, and that they can’t be foreclosed after the statutes have run out. A ruling in favor of those attorneys would be bad news for banks. And when banks get nervous, everybody gets nervous.

The Latest:

There have yet to be definitive rulings on the issue in three states where the market was hit hard by the recession: Florida, New York, and New Jersey. Yet, scores of mortgages are closing in on their statutes of limitations in those states. According to a Black Knight Financial report discussed by Brian Honea in this article for DSNews, 98,000 mortgages are at risk in those states: 40,000 in Florida, 35,000 in New York, and 22,000 in New Jersey.

This is much more than future legal trivia, though. The same report estimates that the unpaid principal balance on these mortgages is around $30 billion (with a “b”)! That may not be enough to put a dent in the national debt, but it is certain to get the attention of banks and servicers, and even the possibility of that shortfall will have reverberations throughout an industry just beginning to find stable footing.

The bottom line: If you think the gears of the mortgage industry are starting to hum again, this could be a big, ugly monkey wrench. If you’re not totally sold on the recovery, this is another reason to be bearish on the market. But either way, this situation is still volatile. To protect your portfolio, you need to have crystal clear documentation that can grease the skids if you need to get something moving fast.

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