There have been numerous articles and blogs about what happens to a homeowner's credit score & possible ramifications for future loans. Now news agencies are reporting a new wrinkle that homeowners should be aware of when they walk away from their foreclosed home.
A recent article in the October 2009 AARP Bulletin by Michelle Diament discusses a tactic of banks in handling foreclosed homes. Mortgage servicers are getting around paying state & local fees on the backs of foreclosed homeowners. To read the entire article Click Here. The article discusses how a 62 y/o homeowner abandoned her Cleveland home of 25 years after HSBC Bank started foreclosure procedures. However, the bank never finished the foreclosure process which she found out two years later when she applied for senior assistance. It was then that she found out she was still liable for delinquent tax payments and along with other property debt. The vacant home has been vandalized and is now worth less than the mortgage. To add insult to injury she found out she has no legal recourse to removing her name from the title. The article doesn't explain why she left the home after 25 years or what steps she took to prevent the foreclosure & the results of the steps she took.
Homeowners in many cities are now victims of so-called walk aways, in which mortgage servicers begin the foreclosure process but do not follow through. In many states there is no procedure for homeowners to remove either the lien or their name from the property title if the bank doesn't follow through with the foreclosure. This leaves the home owner "legally" responsible for continuing to pay property taxes and maintain the property (some jurisdictions are charging property owners' removal fees when homes are declared a public nuisance to public safety).
The question begs is this a new step that the banks are taking to keep the "toxic assets" off their books or is it just the same old tactic but is now a media event due to the economy. Based on my experience with developers in the past that did owner financing then sold a percentage of the note to investors for a quick infusion of cash, this is not a new tactic. A local real estate investor did this; he sold approx. 95% of the loan note and retained the remainder of the note as second lien holder. When the property was foreclosed on in 1995 and he attempted to buy back the note he found out two things that caused him not to sell portions of his notes again. First, the bank in question had gone into foreclosure and all its assets were dispersed to several companies. Second, the bank was in arrears for property taxes for several years (tax department contacts first lien holder only when taxes are in arrears). He did finally get the property retitled back into his name but only after he paid expensive legal fees & paid off the tax liens. The time it took him to regain the property rights cost him not only in the amount of money spent to regain control of the property but the potential buyer of the properties had found other property to purchase without barriers for a quick sale.
This scenario brings up the question then of how many foreclosed properties are actually out there hiding under the radar waiting to hit the market either through traditional sales or at tax auctions? I would urge homeowners to continue trying to work out a solution until you are actually asked to vacate the home by the courts.