The nightmarish sub-prime mortgage crisis has claimed another victim. Bank of America has announced today that it will be acquiring the nation’s biggest mortgage loan originator and servicer, Countrywide Home Loans. About 52 weeks ago, Countrywide had a market cap close to $28 billion when its stock price was close to $45. Today, Bank of America is buying it for $4 billion. The deal announced today is actually lower than Countrywide’s stock closing price yesterday by about 7%. Countrywide’s stock price went up steadily during the housing boom, but as the housing bubble burst over the last year, it fell down to the current single digits in a dramatic fashion.

Countrywide is one of the biggest contributors to the current crisis facing the nation. It originated the highest volume of loans during the housing boom years. With its extensive network of mortgage brokers, correspondent lending channel, and retail outlets, Countrywide  originated every type of risky loans in bulk, from Option ARMs to 106% NINJA Loans. Countrywide used to primarily originate loans backed by GSEs before it lead the sub-prime lending mania. It is hard to imagine that a company that has been in the lending business for close to 40 years has thrown caution to the wind, just like hundreds of fly by night sub-prime niche lenders that mushroomed during the height of mortgage boom. In the case of Countrywide, their old habits died pretty fast and their new habits brought them to the brink of bankruptcy many times in the past 7 months. The rumors two days ago implied at the impending bankruptcy as analysts warned that Countrywide may not last more than two weeks without new capital infusion.

Yesterday, there were rumors of an acquisition and the stock rallied. The widely predicted suitor is none other than Bank of America. Bank of America had already invested $2 billion in Countrywide a few months ago to save it from near bankruptcy at that time. Bank of America had been itching to buy countrywide to get hold of its huge servicing portfolio, along with its established lending channels. It may think that it is paying a paltry sum to buy Countrywide, but the risks inherent in the mortgage portfolios that countrywide holds may not be fully apparent at this time. The rise of tide of foreclosures and the attached costs it imposes on the servicing side may only become apparent  in the upcoming months. Moody’s has already indicated that it may cut Bank of America’s credit rating very soon.

Without today’s announced deal, Countrywide which services almost $1.5 trillion dollars in loans would’ve declared bankruptcy in a few weeks. This could have triggered huge panic and disarray among the homeowners who make payments to it and the investors who receive those payments from it. Bank of America could also be under pressure from the Federal Reserve and the Government to step in and buy Countrywide to prevent it from going under in a face saving measure to avoid more catastrophic effects to the already frozen credit markets.

There is already discussion of a merger between two other past high fliers in the mortgage sector, Washington Mutual and JPMorganChase. There will be no end in sight to the current carnage until there is an end to the rapidly dropping home prices and the ever increasing unsold homes inventory. With a looming recession, almost non-existent credit markets, and a dire economic forecast for 2008, we may need a miracle after all to get out of this mess without going through another Great Depression. I guess this is how history likes to rhyme without repeating itself.

There are major differences in how different states handle their respective mortgage foreclosure processes. The typical steps that are followed vary depending on the specific laws/statutes enacted in that particular state. The type of legal instrument - mortgage or deed of trust - used is detrimental to the foreclosure procedure followed. This article provides an in depth review of the mortgage foreclosure laws and the foreclosure process followed in the state of Pennsylvania.

Pennsylvania (PA) follows the judicial foreclosure process as it uses the mortgage as the legal instrument. So, the entire process is handled through the courts. This form of foreclosure process is not favorable towards the mortgage lenders/banks because it is more time consuming and involves following strict legal procedural steps. There are no trustees or third parties involved, so the lien holder is the only entity that can initiate the foreclosure process.

Judicial Foreclosure Process is more favorable to the property owner in default as it usually allows them more time to either settle their debt, sell the property, or look for other favorable alternatives than facing a foreclosure auction. In contrast to the non-judicial(trustee) process, judicial process typically allows the home owner to occupy the property for a longer period due to extended pre-foreclosure period.

When a borrower fails to make repayments according their mortgage agreement, the acceleration clause, which is a standard part of any mortgage allows the lender to call on the entire debt owed to them, not just the mortgage outstanding payments. Lenders typically initiate the foreclosure process after the borrower is a least 60 days behind on their mortgage payments. “Power of Sale” clause is not part of mortgage agreement and thus the lender has to sue the borrower to recover the debt.

The lender is required to send a notice by registered or certified mail stating their intention to foreclose due to the borrower’s non-payment of mortgage.The notice should give borrower a minimum of 30 days time to make their outstanding payments while also detailing the effects of the acceleration clause. Along with this notice, other information related to the options available to the borrower are also included.

When a borrower doesn’t take any action, the lender approaches the court and files a foreclosure lawsuit to recover the entire amount owed to them. A title search has to be ordered and it should accompany the lawsuit. Once the court determines that the borrower is in default on his/her mortgage payments, then an order of sale along with an auction date is issued.

The Sheriff has to serve the order of sale to the borrower within 30 days; otherwise, the court order has to be reinstated. This notice is usually served within 20 days. From the time of receipt of this notice, the borrower is given 20 days to file their response.

If the borrower doesn’t file any response or cure the debt with in those 20 days, the plaintiff has to send another notice. This notice clearly states the consequences of not resolving the debt. From the time the borrower receives this notice, they have 10 days to respond.

Once the 10 days have passed without any response, default judgment along with a Writ of Execution is entered and an auction date for the Sheriff Sale is set. The notice of Sheriff Sale auction has to served to the borrower/defendants at least 30 days before the auction date. All the other lien holders on the property as determined by the title search must also be sent notices of the impending foreclosure auction. The auction can be postponed and be rescheduled with in 100 days. Any subsequent postponements require a court order.

Depending on the individual sheriff departments and schedules, a sheriff sale auction is scheduled with in a 2 - 4 month time window. It is possible for the borrower to avoid the auction by paying off the debt up until an hour before the scheduled time for auction.

If the property sells at the foreclosure auction at a price that is satisfactory to the lender, the property is sold off. Pennsylvania doesn’t allow the borrower any remedies for redemption after the sale. This basically means that a borrower can’t pay back the debt they owed and get back the property after it is sold.

If the lender accepts a bid that is not sufficient to cover the entire debt they were owed, they can request the court for a deficiency judgment within a period of 6 months from the sale.

Pennsylvania Foreclosure Laws, process,and notices are primarily based on:

• Pa.R.C.P. Rules 1141-1164 (Actions to Foreclose a Mortgage)
• 3180-3183 (Judgments in Mortgage Foreclosure)
• 8103 et seq. (Deficiency Judgments).
• The Loan Interest & Protection Law, 41 P.S. § 101 et seq. (Act 6)
• The Homeowners’ Emergency Assistance Act, 35 P.S. sec. 1680.401 et seq. (Act 91).

Pennsylvania State Code contains information about these laws/statutes and for detailed information, visit the site and search.

PA Foreclosure Law Links:

• NOTES ON MORTGAGE FORECLOSURE LAWS IN PENNSYLVANIAA list of cases that summarize the position of the U.S. Supreme Court and Pennsylvania courts on certain procedural and substantive due process considerations to be followed in a mortgage foreclosure in PA. There is also a summary of Pennsylvania notice requirements imposed in certain cases by statute or the Rules of Civil Procedure.
• § 7.1. Scope - PA Law which regulates lawful interest rates as to foreclosures.
• § 7.4. Notice of intention to foreclose mortgage - PA Law which regulates the manner in which a lender has to notify a borrower of foreclosure.
• Rule 410. Real Property Actions - PA Law which regulates the necessary process actions to foreclose on an owner.
• Rule 430. Service Pursuant to Special Order of Court Publication - PA Law that allows the publication of a scheduled sheriff auction.
• Rule 1037. Judgment Upon Default or Admission. Assessment of Damages - PA Law which regulates the right of the borrower or court clerk to file a complaint against the foreclosing lender.
• Rule 3104. Writ of Execution. Entry. Lien - PA Law which regulates how a writ of execution becomes a lien against real property.
• Rule 3180. Judgment; execution - PA Law which regulates how a foreclosure judgment is enforced.
• Rule 3256. Precipe for writ; mortgage foreclosure - PA Law which regulates the necessary information that needs to be on a writ of execution in order for it to be valid.
• Rule 3276 - Deficiency Judgments - PA Laws regarding deficiency judgments
• Rule 3277. Definitions – (Liens) - PA Law which regulates the legal description of various liens and judgments.
• Pending or Newly Effected Legislation for Your State?
  Please select the Legislative Agenda link here: http://narhri.org/

Mortgage Foreclosure Auction for the Philadelphia county is handled by the sheriff’s office. The foreclosure auction is generally scheduled for the the first Tuesday of every month and it begins at 10:00 a.m. The properties that were postponed or rescheduled from the previous auctions are auctioned off first.

The exact location of the foreclosure auction is, First District Plaza, 3801 Market Street, 3rd Floor, Philadelphia, PA. There is parking available in the basement of the building. The auction room is on the third floor, it’s a big spacious room with ample seating. I prefer to sit in the back of the room, as it allows me to see all the bidders involved in the auction.