When banks decide not to pursue foreclosure, they often neglect to tell the party who’s most concerned– namely, the homeowner who may have already left her house and community.
Many homeowners move out once they receive notice of foreclosure, shifting focus to finding new places for their families to live. Most are not informed that there’s a chance they could escape foreclosure. When homeowners aren’t told that the property is still legally theirs, they can’t keep up with the maintenance fees, fines, or taxes that quickly pile up. The result is a glut of “zombie titles” with the potential to wreak havoc across the nation.
Kermit Lind, former professor at the Cleveland-Marshall College of Law, told Michelle Conlin in Reuters, “[Homeowners] have become like indentured serfs, with all of the responsibilities for the properties but none of the rights.”
Homeowners don’t have the chance to move back into their homes, and a residence that was once filled with life remains empty. Uninhabited properties languish, the suffering of homeowners is exacerbated, and communities– not banks– are left struggling to cope. From Conlin’s report:
Some [municipalities] spend public funds on securing, cleaning and stabilizing houses that generate no tax revenue. Others let the houses rot. In at least three states in recent months, houses abandoned by owners and banks alike have exploded because the gas was never shut off.
Why do banks walk away?
It may seem puzzling that the same financial institutions once hesitant to modify loans to help families stay in their homes now find zombie titles an appealing option. Banks track the loss, actually benefit from it through insurance and taxes, and then sell the debt to collection agencies. This shifts the risk, responsibility, and consequences of the foreclosure crisis onto the homeowners who can least afford it. In short, banks can make more money walking away from a property than owning it. Effects on the homeowner and community are disregarded.
There are neither financial incentives nor regulations in place to compel banks to tell homeowners the foreclosure isn’t proceeding, even though it could bring hope to a struggling family, or at least help them avoid racking up fines and back-taxes.
Restoring balance in the wake of the foreclosure crisis can seem like a daunting task. However, with millions of homes at risk, we also face a historic opportunity to right the wrongs of the past several years. We know that when institutions are allowed to single-mindedly pursue profit, homeowners pay the price. By learning more about the mechanics and consequences of this crisis, we hope to better protect homeowners and communities across America.