$25 Billion Settlement Likely to Spur Foreclosures

Attorneys general in all 50 states negotiated a deal with lenders to resolve foreclosure abuse. Now that the settlement is done, foreclosures will likely pick up steam. Borrowers who have been sitting in their houses waiting for the bank to foreclose may see banks starting to move much faster to finalize foreclosures and resell foreclosed homes.

I had wondered why banks seem to take so long to foreclose. I assumed it had something to do with not wanting to flood the market with foreclosed. But according to some news sources, the main reason is that the banks have been fending off litigation brought by all 50 state attorneys general and were waiting until that matter had been settled before moving more quickly to foreclose.

The settlement should help some homeowners stay in their homes and California is set to get about $12 billion of the settlement funds which would help an estimated 250,000 homeowners.

Economists are prognosticating that this will result in a short-term hit on the economy, but will be positive long-term as the excess inventory of over encumbered homes are sold and prices stabilize.

As banks begin moving faster to foreclose on homes, it is possible that more debtors will need to file Chapter 13 to try to save their homes. Because the anticipated uptick in foreclosures will have the short term effect of driving down home prices, debtors may also be able to take advantage of the Chapter 13 provisions allowing junior mortgages to be stripped from the home where there is no equity to support the junior mortgage.