John P. Nitsche, The Daily Record Newswire
When we hear the term “Zombie,” the imagery most people think of includes slow-walking, brain-hungry undead searching for their next victim. But what if I told you that wasn’t the case for the zombies that line our streets today? All it takes is a homeowner, a lender and a piece of real estate to create the perfect “zombie foreclosure.”
“Zombie foreclosure” is a term used to describe properties that have been vacated by homeowners and the foreclosure process has commenced. However, the foreclosure process is never completed, which in turn leaves the homeowner responsible for the property. Essentially, those who don’t realize they still own their homes are then left responsible for mortgage debt, taxes and upkeep.
The vacated properties can become eyesores in neighborhoods and drive down nearby property values. They also take a big chunk out of local government revenue in the form of unpaid property taxes. It is estimated that more than $400 million in property tax revenue is likely delinquent due to zombie foreclosures. According to recent data, the zombie foreclosure rate has shown some improvement, falling 7 percent compared to the first quarter of this year and dropping 16 percent from year-ago levels.
Zombie foreclosures usually occur on low-value properties that weren’t worth the banks’ time to foreclose upon. Rather, some banks charge the houses off. Some banks have been walking away from foreclosures much the way some homeowners walked away from their mortgage when the housing market first crashed.
Since 2006, 10 million homes have fallen into foreclosure, a number that in earlier, more stable times would have taken nearly two decades to reach. Of those foreclosures, more than 2 million have never come out. Some may be occupied by owners who have been living gratis. Others have been caught up in what is known as the robo-signing scandal, when banks spun out reams of fraudulent documents to foreclose quickly. The rest are zombie foreclosures.
Florida has the highest number of zombie foreclosures, accounting for more than one-third of all zombie foreclosures nationwide. New York, New Jersey, Illinois and Ohio also have some of the highest number of zombie foreclosures across the country. Most of these states have seen an increase in new foreclosure activity over the past year, creating a more fertile breeding ground of zombie foreclosures.
Some states, such as Florida and Illinois, are looking to combat zombie foreclosures by weighing legislation that could help fast track foreclosures and move the abandoned properties through the system more quickly. New York is also considering legislation that would make lenders responsible for the upkeep of zombie foreclosures. Some local governments are creating land banks that would include zombie foreclosures, allowing government officials to rehab properties or demolish them.
Though banks and servicers are not technically required to communicate with borrowers about lien releases or charge-offs, an obscure provision of the Truth-in-Lending Act requires that servicers send statements each month to borrowers who have liability for delinquent mortgage debt. According to the Consumer Financial Protection Bureau, that provision is pushing banks and servicers to release the borrower from liability for the debt.
The CFPB is beginning to look very closely at abandoned properties and zombie foreclosures. The CFPB states 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 they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about; such as thousands of dollars of mortgage debt, code violations and municipal services like water and trash.
The CFPB said it has ideas to help resolve the problem such as creating a national definition of “abandonment”, hastening the foreclosure process so vacant homes can more quickly be transferred to potential owners and non-profits, and creating a national registry of zombie properties.
Like undead zombies, zombie foreclosures will be difficult to get rid of. The majority of these abandoned properties are encumbered by liens and in various stages of deterioration. Legislation will most likely need to be enacted to release the liens, so title to these properties can be transferred.
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John P. Nitsche is president of WebTitle Agency, an authorized issuing agent for First American Title Insurance Co. of New York, Fidelity National Title Insurance Co. and Old Republic National Title Insurance Co. WebTitle Agency offices are located at 500 A Canal View Blvd., Rochester, N.Y. 14623; and the Executive Office Building, 36 W. Main St., Suite 51, Rochester, N.Y. 14614; phone (888) 250-9056; www.webtitle.us.
