CHARLOTTE, N.C. -- Josh and Tayla Thomforde thought they had a deal to buy a three-bedroom house with a fenced-in backyard and room for their family to grow. But the nation's latest foreclosure quagmire scuttled their plans.
Three days before closing on their first home, they learned that Ally Financial's GMAC Mortgage unit was taking the house off the market. The house is a foreclosure, and Ally and other banks are suspending or at least slowing down foreclosure sales as regulators examine whether banks filed foreclosure documents without confirming their content.
Now Tayla, 25, and Josh, 26, aren't sure what they'll do when their apartment lease runs out at the end of November.
"We're a little discouraged," Tayla said. "All the homes in our price range were foreclosures."
Measuring the consequences of the foreclosure limbo is difficult at this juncture. Although the banks paint it as a temporary, paperwork glitch, no one is sure how long it will last or how many home sales will be affected. Meanwhile, the pause is upending plans of potential buyers like the Thomfordes and adding another layer of anxiety to the still-fragile real estate market.
"Everybody wants to know, can we believe the banks, and the problem is something they can handle, or is this something that's going to mushroom and become the next big crisis?" said Bill McConnell, a mortgage consultant with Cunningham & Co. and a board member of the Charlotte Regional Mortgage Lenders Association. "Even if it's not a huge problem, the ripple effect is significant."
Housing industry groups estimate that foreclosure sales now account for 25 percent to 30 percent of home sales.
"We're going to see a sharp drop in October home sales as a result of foreclosure sales being put on hold," said Guy Cecala, publisher of Inside Mortgage Finance. "And as you know, we're already at anemic levels."
The pause in foreclosure sales will be especially hard on first-time homebuyers, who are the most likely to purchase foreclosure properties, Cecala said. "And basically, first-time home buyers are the No. 1 buyers you need for a recovery," he said.
Twenty-three percent of Realtors say they have at least one client who is no longer interested in purchasing a foreclosure, according to a survey this month by the National Association of Realtors.
"The housing crisis is not over," said Rochdale Securities analyst Dick Bove. "It has been extended."
But Sam Barnett, at Barnett Real Estate in Charlotte, said he doesn't think the foreclosure delays will have much effect on the market.
"There are tons and tons of foreclosures," Barnett said. "So the fact that there's not any more coming on the market wouldn't make a whole lot of difference."
Regardless of the foreclosure freeze and its effects, parts of the nation, including Mecklenburg County, will still have a record number of foreclosures this year.
A foreclosure sale is when a house is actually repossessed and the borrower has to leave; there are many more foreclosure starts, where the bank files initial paperwork to begin the foreclosure process.
Banks are still proceeding with foreclosure filings, though some have put a pause on final sales. Ally, JPMorgan Chase, Wells Fargo and Bank of America are among the banks that have stopped or at least slowed foreclosure sales in the past month as they resubmit documents and tighten controls on their foreclosure processes.
Attorneys general in all 50 states are also probing their practices. The banks maintain that no one has been wrongly foreclosed on, and that they foreclose on homes only as a last resort.
David Millsaps, the Thomfordes' mortgage lender, said he knows of other families who wanted to buy foreclosed properties but lost out when the freezes were put in place.
"We've been getting e-mails from Realtors all week who are saying, 'We can't close,"' said Millsaps, who works for New American Mortgage in Charlotte.
As an added problem, real estate lawyers are speculating whether the foreclosure freeze could hurt people who have already bought foreclosure properties, if the previous owners come back with a lawsuit saying the foreclosure wasn't processed correctly.
A title insurance policy should help protect a buyer who finds himself in that situation, said G. Martin Hunter, a Charlotte attorney who represents borrowers in foreclosure cases. Title insurance is supposed to guarantee that the closing attorney made sure that the seller owned the title to the deed.
"If the foreclosure came back from the dead like Frankenstein, what you've got is a huge mess," Hunter said. "I bet there are title insurance companies quaking in their boots trying to figure out what could happen."
Cecala, at Inside Mortgage Finance, said it's difficult to predict how long the foreclosure-documents controversy will persist. Federal regulators and the White House could decide to give the banks a measure of liability protection as they redo paperwork, to prevent the foreclosure freeze from dragging on and crippling the housing market. Things might also calm down after the midterm elections this week, he said.
"It's certainly delayed things for the past two or three weeks," Cecala said. "Now, is it going to be much more than that? The mortgage industry will tell you no. The lawyers will say, 'This is going to drag on as long as we can make money."'
The Thomfordes, who were trying to buy their first house through a foreclosure sale, say they're not angry, just frustrated. Foreclosure properties are some of the only houses they can afford, but they're not comfortable looking at any more because of what happened with the house they were about to buy. The house, in the RiverGate community of Charlotte, had a tax value of about $140,000, but the Thomfordes had a contract to buy it for about $107,000, they said.
It's currently listed as "temporarily out of the market," said Mitch Muller, their buyer's agent at ProStead Realty.
The Thomfordes had made a to-do list of painting and home-repair projects for the house and were excited about moving. But they say they can't wait forever to find out if it will come back on the market, especially with their lease running out. They'd saved carefully to pay for the appraisal and inspection and were worried they wouldn't get the money back. But Ally has told them it will refund the money.
Ally spokeswoman Gina Proia said the bank is "working through our review process diligently" and "making good progress."
"Working with appropriate buyers for these properties is an important part of the process and important for the community," she added.
Josh and Tayla Thomforde met in Bible college and moved to Charlotte after doing mission work in Thailand for a year. Josh does graphic design work for a church, unloads trucks at Lowe's, works in the tire center and photo lab of Costco, and runs his own graphic design business, Blinding Sight Productions. Tayla is a stay-at-home mom to their 1-year-old daughter, Astaire.
"I don't have a whole lot of wants," she said. "I just want a place where we can have people over, and for Astaire to play in the yard, and our family can come from out of town."
The RiverGate house, she says, was perfect.