Bank of America announced on Friday a temporary freeze on home foreclosures unless the foreclosure has been approved by a judge or court proceeding. This decisions comes after bank officials testified that they had signed thousands of documents a month often without reviewing the information. The banks are now taking a time out to verify the documentation is accurate before moving to the final stages of foreclosure. It is likely that hundreds of thousands of foreclosures are now in limbo. And the number will continue to grow if other lending companies follow in Bank of America's footsteps. Politicians and state Attorneys General are calling on financial institutions to widen the review. There are currently 5 million loans that are seriously delinquent or are in the initial stages of foreclosure.

If freezes spread to other home lenders, or if other lenders follow Bank of America and expand their moratoriums, it could greatly increase the impact on the market. If this freeze continues, it could cause mortgage companies to move towards more short sale transactions, which will have a more substantial impact on market prices. "It might stimulate a little more short sale activity, as lenders and servicers look for ways to more efficiently move the property outside the foreclosure," said RealtyTrac Senior VP, Rick Sharga. "Typically your discount on short sales is only 15%, compared to 35% for a [foreclosure sale]." There is a level of uncertainty about the halt in foreclosures as it could potentially cause further damaged to the already depressed housing market. A prolonged delay in foreclosures could also hurt long-term prices by driving investors who had been returning to the real estate market to invest elsewhere. The delays will also lead to longer vacancy of homes in neighborhoods.

The moratoriums could last until January 2011 since it will take a few weeks for loan servicers to review the paperwork and institutions often freeze foreclosures during the holdiay season anyway. The good news is the banks will be forced to review their foreclosure processes to ensure the proper handling of borrower's accounts. And it is a bit of good news for those homeowners who are trying to negotiate short sales. We could also expect that this decision could cause an increase in the amount of approved loan modifications.

If you know someone who is facing a forclosure or who needs assistance with a loan modification, please contact our office. There are options available to help.