Now that Halloween is just a week or so away, we thought it appropriate that we raise the subject of our Oct. 4 post — zombie foreclosures — from the not-quite-dead. That post, “Fannie, Freddie offer mercy to zombie foreclosure victims,” addressed yet another questionable practice of lenders.
In a recent report, real estate data analysis company RealtyTrac defined zombie foreclosures as “properties that have started the foreclosure process but never been foreclosed and the homeowner has vacated the property.” As we said on Oct. 4, it looks as if these are just the homes that make up the backlog; they are the leftovers from the foreclosure crisis during the financial meltdown.
Not really. With a zombie foreclosure, the lender has started foreclosure proceedings against the borrower. In fact, the foreclosure is just a transfer of title away from being completed — and that is just how the lender wants to keep it.
One of the complaints during the foreclosure crisis was that banks and mortgage houses were repossessing properties and then ignoring them. They were not in the business of being landlords, and they did not have the resources to maintain their entire portfolio of foreclosed properties. Lawns and gardens would deteriorate. Homes would fall into disrepair, and major problems with them would go unnoticed.
Bank ownership meant an almost certain and speedy transition from being a troubled property to being a blighted one. Neighborhood property values declined, and it became all the more difficult for the banks to sell the repossessed homes.
So the lenders came up with a way to put off being responsible for upkeep, for being on the hook for repairs and general maintenance. They started to proceed with foreclosure all the way up to the point of the deed transfer, all the way up to the last step before seizing the home from the borrower, and then they paused.
The lender would keep the borrower on the title as the legal owner of the property until the lender could find a buyer. Then, all at once, the deed would be transferred to the lender and immediately transferred again to the new buyer.
The upshot has been that the borrower is left holding the deed to the property long after leaving the house. And there are consequences.
We’ll explain more in our next post.
Washington Post, “House Lawyer: New federal loan guidelines ease the sting of ‘zombie foreclosures’,” Harvey S. Jacobs, Sept. 25, 2014
RealtyTrac, “Zombie Foreclosures Still A Lingering Legacy of the Housing Crisis,” Ginny Walker, June 25, 2014