Because of rising repair and maintenance costs and legal fees and falling home values, more and more mortgage banks have been walking way on property foreclosure.
On mortgage papers and real estate titles, the foreclosure properties still belong to the lenders despite their walkaways, but homeowners have been called by cities to resume their ownership and repair and maintain the foreclosure properties.
The case of 41-year-old Mercy James in South Bend, Indiana illustrates the rising trend of lender walkaways. James asked her tenants to move out of her rental home when it was foreclosed and was scheduled for a sheriff’s sale in 2007. Recently, she was contacted by the city to resume maintenance of her home. When she returned to her foreclosed home, the structure has deteriorated to a point that the city has been planning to demolish it.
When James tried to find out which lender stopped the sheriff’s sale, she can no longer trace it. The servicer to which she paid her last payment has closed and the servicer’s parent company has been dissolved. The original lender which issued her the mortgage said it could no longer find her record.
In Buffalo, city officials have sued 37 banks in 2008 to force them to repair and maintain more than 57 abandoned foreclosure properties which have been causing blight to neighborhoods.
Bank walkaways can be counted in states that mandate the processing of foreclosure properties through courts, such as New York and Indiana. But in states which allow state foreclosures without court proceedings, bank walkaways have been difficult to monitor.
The major factors causing lender walkaways are the declining home values and the fast deterioration of foreclosure properties. Larry Rothenberg, an attorney for creditors’ rights advocate Weltman, Weinberg & Reis, said foreclosure properties have become worthless by the time proceedings reach the sheriff’s sale.
Oftentimes, the values of can no longer justify additional expense. Especially for low-priced homes, it has been easier and less costly for banks and investors to just the write off the foreclosures as bad debt losses rather than going through the hassles of maintaining the foreclosed properties while waiting for years for buyers.
Because of these bank walkaways, the city council of South Bend has been planning to implement a new legal mediation procedure that would allow homeowners to stay in foreclosure properties while the mortgage issue is being resolved. Government officials said this mediation process will help in stabilizing communities battered by state foreclosures.
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