City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal ”” from legal fees to maintenance ”” exceeds the diminishing value of the real estate.
The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.
In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.
“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.
On the face of it, if a bank initiates foreclosure proceedings then it should immediately become liable for the property. If it judges that it can’t recoup adequately it should simply avoid foreclosure. Responsibility without power is unjust in the extreme.
Maybe a Jubilee Year should be declared and all debts forgiven.
I guess the old owners could “squat” and unless a new deed was recorded perhaps still have ownership; however, if they ever tried to sell it — well I can’t imagine how a title company could clear the title. I guess the secret is don’t move until the sheriff removes you!
Julia – you are correct in identifying the issue of title. These properties will be very difficult to sell in the future – even if the market recovers significantly – because of problems with obtaining clear title. This issue will last decades.
#1
So you want to re-write the real estate laws of all 50 states to conform with your new idea? You want to make banks liable for properties they cannot control? The forclosure laws contain provisions to protect the homeowner and give them time after the foreclosure proceeding is filed. This time is intended and designed to give the homeowner ample opportunity to resolve the mortgage default. Do you porpose eliminating those protections? Or do you just want to stick it to the banks? Do you want the banks to have all the liabilities as soon as they start the foreclosure process – but none of the rights to control the property? How much do you want to increase the risk borne by mortgage lenders? How much do you want to increase the price of future mortgages?
Scott,
I’m happy to bow to your superior knowledge of property law, but the examples described in the article don’t seem to fit your description.
To me the process of foreclosure implies an assertion of a right to the property by the mortgage holder, because the property owner lacks the means to finance the debt. In a market where it is clear that the property cannot be disposed of with any reasonable rate of return, it would make far more sense to turn the property owner into tenant. In the example cited, the mortgage holder could have taken the place of the owner in receiving the rents of the existing tenants and the property would not now be scheduled for demolition.
To create a legal void in which one is both the owner of something (as to liability to the city) and yet, at the same time, not the owner (as to the uncertainty as to title) is unsatisfactory and the mortgage holder is ultimately responsible. After all, it extended the mortgage to the owner in the first place.