By Dina ElBoghdady
Washington Post Staff Writer
Friday, October 8, 2010; 10:55 PM
Since lenders began halting foreclosure sales elsewhere in the country, Peter Guarino has nervously been calling his real estate agent several times a week to ask what's become of the Burtonsville condominium he snagged at an auction on the courthouse steps in August.
Guarino has ponied up $30,000 for a down payment to buy the foreclosed property. He's signed a contract and now, before heading to settlement, he's waiting for final court approval - unsure whether he will get his money back if the deal fails.
"I thought it was sure thing," he said, "but now I feel so vulnerable."
Although recent steps by banks and government officials to freeze foreclosure sales have primarily affected real estate outside the Washington region, the spreading crisis is also casting a pall on the local market.
Like Guarino, some area residents are increasingly anxious about contracts they've signed to buy foreclosed homes. A few in the Washington region have seen their deals put on ice. And others have decided to no longer consider foreclosures as they go about house hunting.
The initial measures by U.S. financial firms to freeze foreclosure sales - taken amid reports that at least several banks have used botched and fraudulent paperwork to evict people - have most severely affected those states where lenders need a court order to sell a home.
That's not required in Maryland, Virginia or the District, yet a chill is already affecting local sales. And a complete moratorium seemed much closer in the Washington region Friday after Bank of America became the first lender to announce that it would suspend foreclosure sales and proceedings nationwide.
In the region, 14,000 foreclosed homes were listed for sale by real estate agents, according to the most recent data available from Realty Trac.
Nick Chaconas, a Maryland real estate agent, said he was one week from completing a foreclosure deal for one client, who was buying a $470,000 fixer-upper in Potomac, when an e-mail arrived putting the deal on the skids.
The e-mail, from the title insurance company involved in the deal, said the mortgage lender PNC was suspending foreclosure sales for at least 30 days "due to a review being undertaken on all foreclosure files."
"My initial reaction was, like, damn," said Chaconas, a Redfin agent. "Everything was going so smoothly. Now the underlying feeling is caution. Extreme caution."
He said his client does not plan on walking away from the deal if he can help it. "But it's frustrating and disappointing," he said.
The problems now afflicting the real estate market initially emerged when Ally Financial, formerly known as GMAC, announced that it was suspending evictions after discovering problems with the documents related to foreclosure proceedings.
Ally limited its freeze to the 23 states where lenders have to win a court order to initiate a foreclosure. The lenders must submit certain documents that are not required elsewhere and problems have arisen in that paperwork. Other major lenders, including J.P. Morgan Chase and Bank of America, followed suit, suspending foreclosures in those states.
The other 27 states, including Virginia, Maryland and the District were not immediately affected by the lenders' actions.
Because Virginia does not require court orders, it is one of the speediest states when it comes to disposing of foreclosures, and the District is only slightly slower, according to Kristi Cahoon Kelly, a consumer rights attorney in Fairfax. Once Virginian homeowners are notified they are in default, their homes can be sold in as little as 30 days, she said.
Maryland requires that lenders file documents with the court ahead of foreclosure, but court approval is not needed for the foreclosure sale to occur, said Diane Cipollone, an attorney at Civil Justice. The burden is on homeowners to seek a court order to stop the process, she said.
Karen Rollings, the agent representing Guarino, said previous owner of the condo had 30 days to contest the foreclosure sale. That period passed. Now a Montgomery County judge must ratify the sale before it is finalized, she said. Judges often do in Maryland, but the court is backed up.
"We should be in the clear, but I'm not arrogant enough to say we are because the rules are changing every day," Rollings said. "It's so crazy. I mean, Bank of America just waved their wand said they're not doing any more foreclosures in 50 states. That's a huge problem. I've been doing this 30 years, and this has never happened before."
Many real estate agents who represent lenders in selling foreclosed properties say that there's always risk involved in buying them. They say prospective buyers are often made aware of that.
"We always warn the buyer that the down side [to buying a foreclosure] is that stuff can pop up at the last minute," said Paul Sliwka, who represents lenders with properties across the Washington region. "That risk has always been there, and now it's come to the fore. These issues that people think are new are issues that have been around forever, but now they're under a magnifying glass."
Still, some agents say they will caution buyers about contracts.
"We may want a quick escape clause, so that we don't wait around in limbo committed to a contract we can't get out of," said Doug Mitchell, a D.C. agent.
Meanwhile, emotions among potential buyers are running from ambivalence to anger.
Donna Shaw, who's been in the market for a home for more than a year, has been looking only at foreclosures and other distressed properties being sold cheap. She'd already backed out of a contract on a foreclosed home early in her search because she suspected there was a hole in the roof and could not get an answer from the seller.
"I'm tired of going through all this, getting my hopes up about a home and it falls through," she said. "Foreclosures are already scary and now they're even scarier."
Guarino said he blames the mortgage industry for starting the entire foreclosure crisis.
"They have caused an immense amount of problem by their negligence and greed," he said. "It doesn't seem to have ended, yet."