Saturday, January 19, 2013

Zombie Titles - albatross mortgages around homeowners' necks

Reuters reports on a little-known feature of the mortgage crisis -- the zombie title. Michelle Conlin, writing from Columbus, Ohio, tells a hair-raising story about home-owners who receive notice from their banks that the bank is foreclosing on their home for a delinquent mortgage. The home-owner leaves the home, and believes that that is the end of the story for them and this house.

Apparently, a number of banks are not following through with selling these foreclosed properties. They either do not notify the home-owner, or the home-owner fails to receive the notice, for whatever reason. But the home-owner's name continues to be on the deed, on the tax records, on all the legal documents. So when the county sends a notice that the property is becoming derelict, the home-owner is liable. When the taxes are due and over-due, the home-owner is liable. And -- surprise! -- the mortgage payments are still due... and piling up with interest and penalties. All happening without the home-owner's realizing they are responsible for anything about the property.

The Reuters report includes some heart-rending examples of how people's lives are being devastated. This is not happening all the time, but often enough that some agency or lawyer should be looking at either a cause of action or some regulatory action. The report mentions that out of some 10 million mortgage foreclosures, 2 million have not come out for various reasons, including the banks simply dropping the mortgage action, as with these zombie titles. The report goes on the say that housing court judges are seeing thousands of these zombie title issues across the country, and that the number seems to be rising.

The home-owner who has the zombie title cannot qualify for disability, because the title to the phantom house appears to be a capital asset. Home-owners find
wages garnished, their credit destroyed and their tax refunds seized. They've opened their mail to find bills for back taxes, graffiti-scrubbing services, demolition crews, trash removal, gutter repair, exterior cleaning and lawn clipping. At their front doors they've encountered bailiffs brandishing summonses to appear in court.

In some cities, people with zombie titles can be sentenced to probation - with the threat of jail if they don't bring their houses into compliance.
Banks have realized that holding the asset or trying to sell the mortgaged house actually saddles them with a loss. Thus, they are often quietly stopping all action towards the sale of the property after beginning the foreclosure effort. Homeowners too often expect the banks to act as they used to, and assume the bank will put the house up for auction to satisfy the outstanding debt on the mortgage. But banks have realized that by walking away from the debt, they often gain more by filing for insurance on the debt, and avoid all the costs and responsibilities of owning the property. But if they do not properly notify the mortgagee, a zombie title results. Reuters says there is no regulation requiring banks to notify the home-owner, and so it often does not happen.

A number of cities have attempted to create registries of abandoned houses to try to force the mortgagors to take more responsibility for the properties they seize. Neighborhoods become blighted as the properties are gutted by vandals, and the banks or other mortgage servicers claim they have no responsibility to manage or maintain the properties. These organizations have opposed the registries proposals, according to the Reuters report.

Tip of the OOTJ hat to my terrific, peripatetic daughter for pointing me to this story.
The decoration for this post comes from a clever and entertaining blog, The Rules Lawyers, "Applying the Supreme Court's rules of statutory interpretation to resolve Warhammer 40K rules disputes"

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