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Last week we wrote an article that included an infographic defining what a Zombie Foreclosure is and the harm they do to the neighborhoods that they are in!
These abandoned properties tends to be neglected, possibly vandalized and most definitely eyesores detrimental to the value of the other houses around them.
We also discussed how the snail’s pace of the foreclosure process, currently more than 1,000 days in a judicial state like New York, means that the problem will likely be a long-lasting one.
Coincidently, an article that appeared in MortgageOrb yesterday spoke to the fact that the Consumer Financial Protection Bureau (CFPB) is currently investigating the way in which lenders are handling this issue, seeking to find potential solutions to these Zombie Foreclosures that will benefit those being affected.
The affected includes both the borrower as well as the neighborhood.
According to a report from Reuters, ‘…Laurie Maggiano, the CFPB’s servicing and secondary markets program manager, said during a Federal Reserve Bank of Cleveland conference last week that the bureau is “beginning to look very closely at abandoned properties and zombie foreclosures.”
More specifically, the CFPB will be investigating to see if lenders and servicers are properly notifying homeowners who have abandoned their homes that the homeowners are still legally responsible for the properties. That includes general maintenance and upkeep, which becomes an issue if the town or city where the property is located has blight laws on the books, but also ensuring that the property is properly secured and safe – and that there are no squatters living there.
At issue is whether lenders are properly notifying borrowers as to what stage they are at in the foreclosure process – including whether the debt has been written off or whether a foreclosure has actually been completed – by way of their monthly statements.
“There is direct borrower harm if a borrower believes a foreclosure on their property has been conducted and they are no longer responsible, and months or years later find out that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about,” Maggiano said…’
I suspect that a homeowner who has abandonded his or her property, which typically occurs when there is no equity in the property, will not be too concerned about maintenance obligations. Putting pressure on lenders and servicers to notify owners of their obligation is unlikely to improve the situation. To address the blight problem, New York State requires lenders to be responsible for maintenance once a Judgment of Foreclosure and Sale is issued.
Thanks for stopping by Adam. I think that the time between abandonment and judgement in New York State is significant which compounds the problem but completely agree with the fact that the underwater homeowner who moved out will not be very concerned with maintenance and beautification.
If the bank is going to take that long to finalize the foreclosure and in the meantime the homeowner still owns the property, could a solution be that the homeowner rent it out (even below market value). Then someone is living in the house temporarily keeping it up and the underwater homeowner could pocket some money. It seems shady but I am not a lawyer so I do not know what the legal implications of that kind of arrangement would be, it just makes since to me.
I think that sounds like a reasonable solution which makes me think that it won’t happen.