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from Local Attorney, Michael H. Wasserman

Thursday, June 5, 2008

LENDERS BUNGLING THEIR FORECOLOSURES - part 1

Any looking to understand how and why the mortgage companies got themselves into the financial mess they are in will appreciate the experience a client of mine had recently while trying to buy a foreclosure property from the bank.

The property in question was one of three units in a condominium building. For whatever reason, all three units are now owned by the three banks that foreclosed on the three mortgages used by the three original unit owners.

Each bank undoubtedly made their borrowers covenant to maintain insurance on the condominium common elements. After all, if the building were to burn down, the lender would want to either see it rebuilt or to apply the insurance proceeds towards the loan repayments. Each of those banks also insisted that, in the event of an insurance policy lapse or cancellation, they would have the right to purchase insurance - at their borrowers expense - to prevent such losses. Standard procedure there. No surprises.

BUT, now that the banks took control of the three condo units, guess what? Each stopped paying the monthly assessments. There is no condo association. That "master" insurance policy on the building? Long since lapsed. They are all uninsured!

Worse yet, no one who wants to purchase any of those units (and use a mortgage loan to do so) can buy one until insurance is in place! Or until an association exists, in order to get necessary lien waivers from the association.

We spotted this problem early and canceled the contract.

The only buyers who will likely be able to purchase any of these units are going to be cash buyers who are willing to also buy insurance for the whole building, or speculators who are able to buy all three units in order to re-establish the condo association.

How many buyers can possibly qualify to do this? who knows. until then, this property will sit idle and empty.