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FORECLOSURE AND BANKRUPTCY

Homeowners Hurt By "Zombie Foreclosure" Debt after Walking Away

Written By:
February 22, 2013 at 1:49 PM

Pettition to file for Bankrupcy

Housing experts estimate that anywhere from tens of thousands to as many as 2 million “zombie” foreclosures line neighborhoods across America. The term refers to homes where borrowers move out after a foreclosure auction has been scheduled. However, months—sometimes years later, it’s discovered that the auction never materialized or the mortgage lender failed to transfer title to the property.

Borrowers saddled with responsibility

During the foreclosure crisis an estimated 4 to 4.5 million borrowers lost their homes. Some homeowners voluntarily handed the title to the home to their bank in a transaction know as “Deed-in-lieu of foreclosure.” In other situations, the bank may have announced that they were foreclosing but failed to follow through on the process.

Often, banks move slowly to take possession of these properties to avoid associated costs, such as taxes, maintenance and other costs. Consequently, these obligations can go unpaid for years.

From a technical perspective, the borrower still owns the property. Therefore, the person has the responsibility for the payment of real estate taxes, assessment, homeowners’ association dues, and other obligation that accumulate on the home.

One homeowner’s story

Take the case of Mustapha Sesay who gave up his home Brandywine, Maryland in 2008. In 2010, a debt collector called the 45-year old father of two to try and make arrangements for the payment of a $70,000 debt. It seems the lien holder for the second mortgage on the home never forgave the debt—although the primary lender foreclosed on the property.

In most cases, the second mortgage holder eats the loss if they cannot receive payment from the proceeds of a foreclosure auction by the primary lender. However, some states regulations allow second mortgage holders to file lawsuit against borrowers to collect on the debt even after a foreclosure.

Low-income communities hit the hardest

Many homeowners who walked away from properties they could no longer afford believed they were bettering themselves financially. Unfortunately, many find themselves still on the hook as their credits scores undergo further deterioration. The zombie foreclosures linger, making their financial lives even more difficult by garnishing their wages or causing a denial of credit. In some cases, borrowers were forced to continue making mortgage payments even if they did not live in the home under the threat of legal action.

In addition, many of these vacant homes fall prey to vandals. This does further harm to the efforts to prevent the creation of more eyesores in these devastated communities.

Settlement requires lenders to inform borrowers

To combat the issue of zombie foreclosures, the $26 billion settlement reached last year between government negotiators and five major lenders—Bank of America, Citigroup, Well Fargo, Ally Financials, and JPMorgan Chase—requires the banks to inform borrowers of any decision to delay or aver foreclosure.

Some foreclosure defense attorneys say that the banks have not been very diligent about living up to this part of the agreement.

Receiving homeowners’ assistance

Home owners who believe that they may have a zombie foreclosure case should seek counseling from one of the many local community advocacy groups affiliated with National Community Reinvestment Coalition or NeighborWorks America. These organizations have experienced counselors who can help and the services are free of charge.

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