Photo credit: Jack Mallon
A Big Part of the Shadow Inventory
The CFPB is starting to look at the increasing numbers of zombie foreclosures and abandoned properties that bank and mortgage servicers have walked away from to avoid maintaining.
“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 that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about”, said Laurie Maggiano the CFPB’s servicing and secondary markets program manager.
Consumer advocates have requested that the CFPB address this issue because of servicers not complying with certain disclosure requirements to borrowers and anti-blight provisions. Banks are required to release the property lien or complete a foreclosure sale, rather than leaving the property in limbo.
Bank “walkaways” typically happen on low-value properties. When the mortgage servicer determines that the cost to repair the home is more than what it’s worth, they may decide not to complete a foreclosure. The borrower is still obligated to continue paying the mortgage, taxes and to maintain it. Although servicers typically attempt to contact the defaulted homeowners more than several times about their pending foreclosure; they usually fail to notify the homeowner when the foreclosure is stalled.
“They are pushing the borrower out of the home, which results in abandonment. Servicers need to make sure they are accurately communicating the status of the foreclosure process to the borrower”, says Peter Skillern, Executive Director of Reinvestment Partners, a Raleigh, N.C. based non-profit.
“Nationwide there are roughly 152,000 vacant or abandoned homes for which the servicer has not taken title to the home,” says Daren Blomquist, Senior Vice President at RealtyTrac. This constitutes about 22 percent of the 676,000 bank-owned homes that are not listed for sale or shadow properties.
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Banks and servicers are not technically required to notify buyers about lien releases or charge-offs but a provision of the Truth in Lending Act (TILA) requires that servicers send monthly statements to borrowers who have delinquent mortgage debt.
That obscure provision is “pushing servicers to release the borrower from liability for the debt,” Maggiano said. “So, it’s not a technical requirement in our regulations…but we consider that to be a responsible communication to borrowers.”
The CFPB ideas to solve the issue include creating a nationwide definition of what abandonment is, speeding up the foreclosure process and creating a national registry of these homes which should improve communications between servicer and local government.
Frank Ford, a Senior Policy Advisor with the Thriving Communities Institute, said that searching for the local point of contact for vacant properties is “not a hard thing to do.” He went on to add that servicers are caught between their responsibility to secure the abandoned property and fear of being sued by the homeowner for trespassing.
References
Mortgage Servicing News. “CFPB Takes Aim at ‘Zombie’ Foreclosures” 15 July 2014. http://www.nationalmortgagenews.com/news/servicing/cfpb-takes-aim-at-zombie-foreclosures-1041319-1.html