A Case Study: Family Buys Home from Wells Fargo that the Bank didn’t Own

As we continue on in the quagmire of the mortgage meltdown, there are a few lessons to be learned. Let’s look at one issue that was originally reported in June 2011 and what this means for today’s homebuyers.

One of the most surprising parts of the 2008 housing market crash was how we found out how little banks were able to track home purchases and their own inventory. Brian and Holly Barnhart in Cape Coral, Florida thought they bought their dream home from Wells Fargo and then went to refinance it and found out that Wells Fargo didn’t actually own the property they just spent their life savings on.

The problem appears to stem from a mortgage foreclosure lawsuit filed by Wells Fargo in 2007 against the former owner of the property, Mr. Riccobono. After winning the suit, the bank took possession of the property, but moved on July 30th 2009 to set aside ownership of the house. In a strange quirk of Florida law, the property reverted to the original owner of the house.

However, that didn’t stop Wells Fargo from selling the house to the Barnharts on November 20th, 2010. When they discovered they didn’t really own the property two months later, they had already spent more than $240,000 on the property. It’s the latest in a series of cases where people are still seeing the aftereffects from the housing bubble burst many years ago.  Foreclosures in Lee county had surged to an all-time high in November of 2008 with more than 2,655 properties in default. Foreclosure notices have waned over the last few months especially, but the aftershocks can still be felt reverberating through the economy, and the Barnhart’s case is the latest in a series of poor management by the courts and banks in figuring out what to do.

The main problems stem from a combined series of factors that all contribute to situations like what the Barnharts are facing.

Zombie Notes on mortgages have become all too common for homeowners. Homeowners attempt to modify their loan with the bank and later find out the deal they believed they made with the bank wasn’t actually what happened and their debt was not cancelled by the bank at all, putting them at risk for foreclosure.

Courts have been struggling with the backlog of foreclosure cases and so many cases had been rushed through the courts over the last few years, the ACLU says that many homeowners were denied their constitutional rights in the process. Homeowners who were current and had never missed a payment could come home to a foreclosure notice they had no idea about up until someone knocked on their door.

Many problems also stem from the robo-signing scandal of 2010. Many of the documents signed by banks were signed without having been examined to ensure they proved the provenance of the documents and legitimacy of the claim of the bank.

Many things all contributed to the Barnhart’s devastating situation and their loss of their life savings, but most of all, the bundling of many mortgages by security firms traded electronically on the stock exchange created many opportunities for mistakes and clerical errors that led to the doubt of who really owned the property.

Wells Fargo says they do not have any responsibility for having mistakenly sold the house to the Barnharts, even if the name of the trustee appears on the foreclosure documents, instead shifting blame to the American Home Mortgage Service Inc. who services loans for the bank or to Powerlink Settlement services. These companies were the ones who prepared the actual documents and wrote the title insurance policy for the home.

No one in the situation has admitted any wrong doing yet. There’s not much Barnhart can do at the moment other than wait for Wells Fargo and American Home Mortgage Inc. to re-foreclose on the property again and sort out the paperwork. However, even that doesn’t guarantee a happy ending for Barnhart as there are several other liens on the house that are senior to the ones that Wells Fargo owns, and it’s still unclear as to whether or not those will need to be paid before Barnhart can take possession of the house.

So what does that mean for you? Be careful when you purchase a bank owned property. Work with a real estate professional who can assist you with avoiding this type of pitfall. We see time and time again where REO Agents are marketing property for sale that the banks don’t actually own yet and they never disclose this to the other agent nor the buyer. The banks are providing incentives to the buyer to close with the foreclosing attorney which only further puts the buyer at risk. The Atlanta Housing Source Team at Solid Source Realty exposes these risks and has a team of professionals to assist buyers in the process to make sure that they are protected against this type of problem. If you are interested in purchasing a home, want a great deal, but want to make sure you are protected, then contact us!

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