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Can the Lender's Sue the Borrower's for Vandalizing The Home?

By Natalie Feldman

Commercial Real Estate Agent with Eisner, Feldman & Grant, Inc.

August 06, 2008 10:34 AM

A shout out to those of you working in the short sale arena... In the case of foreclosures, are we going to see the investors/investment banking industry put pressure on lender's to exercise their rights within the mortgage(s) to pursue homeowners (civil or criminal) who have vandalized the pledged collateral (the home) prior to moving ? What about neighbors who's property values have been driven down by these vandalized homes. Millions of dollars in equity are lost by surrounding homeowners when a pre-foreclosure home becomes limited to cash sale conditions (rock bottom sale prices) because of homeowner vandalism - Do they (neighbors) have a right (as a class) to pressure a mortgage company to pursue legal action against the borrowers of the damaged property (if they did the damage or allowed it to be damaged?) - Not as hard to prove as you would think by the way - many of these homes were on the MLS with "Before" photos that show the homes in lovely condition just months before being vacated and no police reports supporting outside vandals... Let me hear your thoughts if you know of this occuring... Check us out on-line. About-The-Tampa-Area

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Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239

Real Estate One - Commerce, MI

Michigan homes for sale ~ yesmyrealtor@gmail.com

I don't believe you can convict somebody of vandalizing their own home. If they still own the home they can do what they want with it. It may not be right, but it is happening all the time.

Aug 06, 2008 10:39 AM

Debbie Small

Long & Foster Realtors - Martinsburg, WV

REALTOR

I am not aware of this happening yet but wouldn't it be great. I know I've seen some unbelieveable messes and wondered why anyone would do such things.

Aug 06, 2008 10:43 AM

Paul Francis

Francis Group Real Estate - Las Vegas, NV

Las Vegas Real Estate Agent - Summerlin Homes

I would think lenders would have a better case for going after deficiency judgements against the homeowner who wrecked the property (and value) before leaving. As for class action lawsuits by neighbors, can neighbors sue the homeowner that painted their house neon blue, has 8 junked cars parked out front, etc??

That does effect the value of the neighborhood...

Aug 06, 2008 10:43 AM

Chris Horton

Horton's Lawn Care L.L.C. - Burton, MI

Natalie- Great question. Although I think it would actually be a little harder to prove than you think (simply because in many areas if the police don't personally see it or someone doesn't report it while in progress they really don't care/ won't do anything). Even if it was reported and proved the homeowners where the ones that did the damage (I think under current laws atleast, and I am not a lawyer) it may not matter much/ might not be able to do anything anyways as they are still techniqully the owners of the property they are damaging :-\ However I think if that is the stance of the laws many banks will probably fight to get it changed. As far as the neighboors go, not sure they could do much (especially if the ones losing their homes really can't afford them and aren't just doing a buy and ditch move) because more than likely they don't have much the neighboors could sue for anyways... same for the banks though too really, I mean if they can't afford the home as it was do you think they will be able to pay the possible tens of thousands in repairs?? I looked at a home with my parents who are investors a few years ago, and you know the old saying "everything but the kitchen sink", yeah they took that too lol. They took all the doors (including the 2 car garage door and opener), the kitchen & bath cabinets (and sinks), even the living room flooring. They owed over 225k on the home, which ended up selling well below 100k (and that was before the market even thought of going down!

Aug 06, 2008 10:47 AM

Natalie Feldman

Eisner, Feldman & Grant, Inc. - Clearwater, FL

I disagree Russ. Of course, proof would be required to convict, and my question presupposes it can be proven. And you're right, it is happening all the time, that's why I'm asking if anyone else has seen charges filed.

But make no mistake, the mortgage that a borrower signs to collateralize a loan is filled with the legal jargon that protects the banks and the value of the asset pledged. Almost all of those pages are paragraphs that lay out the reps and warranties of the parties and how the borrower must protect the asset (and it's value) Bet you always wondered what it took 24 pages to say?

A good part of the document is very global language about the borrow's responsibility to "keep" the property in various stages of repair and the mortgage holder's rights (should the borrower not keep their side of the bargain e.g.:paying the loan back). This is another reason why banks REQUIRE borrowers to have home-owner's insurance - to protect the value of the asset should it be damaged beyond the control of the borrower. But I'm not talking about acts beyond the control of the borrower - those would be covered by P/C insurance.

I'm referencing Overt acts by or on behalf of the borrower that detrimentally affected the value of the collateral pledged. Not over grown grass and unclipped hedges or poor paint color choice, this is about ripping out $70K kitchens and stealing air-handlers etc...

That home is collateral for a loan. You betcha there's verbiage in there about maintaining the value. Get one out and read it. They are all different and based on the laws of the state in which they are written, but I bet this little foreclosure incident we're having nationwide is going to change the way these clauses appear in the future.

Aug 06, 2008 11:01 AM

Natalie Feldman

Eisner, Feldman & Grant, Inc. - Clearwater, FL

No, of course it wouldn't be worth it to go after them for a monetary judgement/civil.

I'm talking criminal charges - Vandalism. FELONY

And yes you have to be able to prove it. But there are witnesses. You think the neighbors didn't see a truck pull up and take the kitchen cabinets and appliances away? Every neighbor in my neighborhood knows every blade of grass that moves.

We have one (just one thank god) of these homes in our community and collectively the reduction in value to the neighborhood in lost equity to the remaining homeowner's is millions of dollars. The "borrower" removed all the kitchen cabinets and appliances, all the laundry room cabinets, the pool pump, the doors and hardware, the in wall vacuum system, the garage door openers. We had the home listed before they went into foreclosure. We have photos of what it used to look like. The woman on the loan (not wife, not married) moved out, bought a different home (paid cash for a foreclosure!) and upgraded the kitchen in the (replacement) home with the cabinets and appliances from the home she left behind (that's going into foreclosure). We've been in it.

My biggest issue is that this behavior is a choice. That "homeowner" does not have the legal right to damage/liquidate that property to the point of devaluing the asset if it's collateral on a note. Not without getting the approval of the note holder.

Aug 06, 2008 11:14 AM

Barb Van Stensel

Chicago, IL

Natalie, it would be ideal that "homeowners' didn't vandalize their own homes but it would be hard to prove in a court of law unless photos were in place, receipts were in place, etc. What blows my mind is that this particular person went out and bought another property in cash and must be under an assumed name because the bank would be after that property.

I think we should create, unless there is one in place, for such viscious acts. Turn them in - knowing what they did and how they defrauded the bank, their neighbors. If it can be proved, I say, clean their wallets, their clock and their cars! Set an example - front page headliner, have the banks give rewards to those who know that this is going on and we may see reduced activity. I said "may".

Good post!

Aug 06, 2008 11:23 AM

Natalie Feldman

Eisner, Feldman & Grant, Inc. - Clearwater, FL

Want to know why they weren't married... She bought that property and paid cash (couldn't get a loan after all, she was in foreclosure) and yes, she put the new property in her name...

Oh in Florida (a.k.a. the Debtor's state) you can have one homestead per person/family and that property can't be touched for any reason other than foreclosure of a note for which it's pledged, taxes or HOA fees (I think they might getcha for back child support now but I'm not sure if that passed). We're the proud home state of fine felonious characters because virtually nothing can touch a homestead (e.g. OJ Simpson- You should see the house he lives in!)

And actually, a homestead is a Constitutional right, it's not just in Florida. It's just that other states give various debt holders the right to attach to your homestead, but not so in the sunny state of Florida.

I actually am - as a harmed homeowner in the subject subdivision - circulating a petition to the other home owner's in the neighborhood to send to the mortgage holder to pursue her. Criminally but it has to be per the mortgage terms. As much to keep the other few pending foreclosures from considering this for their property as they move out as for any other reason. Put it this way, if the average home in the subdivision of 188 homes is 2800 sq.ft. and the property that's vandalized sells for just $20/sq.ft. less than market rate (and it will probably go for far less than that because the home is un-insurable as it is, so it requires a cash sale discount.) you're looking at a real equity loss to the community of roughly $10 Million dollars - or more.

If one homeowner does it to us, we can argue it's not an arm's length transaction and probably keep values stable. If 3,4,5 or more do it, it will devastate the neighborhood.

Aug 06, 2008 01:02 PM

Chris Horton

Horton's Lawn Care L.L.C. - Burton, MI

Natalie- Being from the 1st state and probably one of if not the hardest hit states in this whole forclosure crisis, be glad if your whole sub of 188 homes only loses 1 million in value collectively.

We have subdivisions around here that the only homes forclosed on so far are ones the builders still had (1 of which is not even close to being finished, as it is still only plywood exterior and stud walls inside, the rest are 90-100% finished.) with (just guessing, as I haven't checked exact #'s) 75-100 homes that each and every home has already lost 250k+... One home was originally sold for $979,900, it is on the market right now for 249,900 (yes 730k less then original sales price... home owners still owed over 900k on the home, they purchased 2 years ago) and was sold at sheriff sale for 150k. Oh yeah... and they are still having trouble selling it, and it is in perfect move in condition. My own home has lost over 100k in value (if not 200 by now) and we have only had 1 foreclosed home in the area and that too was in perfect move in condition.

Unfortunately, while you are right when the homeowners remove everything it is worth less, that is not the main reason home values have dropped around the country....atleast not here. The main reason is no one can afford the homes they used to... wait they couldn't really afford them in the 1st place otherwise they wouldn't be losing them in record numbers. Thanks banks for your easy to obtain loans :-D Also many areas the other home owners just turn their heads and even if they did say anything will not say anything so they don't have to "deal with it" and possibly make statements/ go to court to testify or whatever their excuse is. We had one of our homes broken into less than a week after we finished it. The people that did it stole the brand new appliances, and the small tools we still had in it, along with an extra over the stove/range... The neighboors saw the whole thing (as they finally said they did a month later) but never told the cops or us (until a month later). We found the over the stove microwave/range at a local hardware store that had been returned to the store.... reported it to the police and told the store... the police wouldn't do anything because we didn't mark it somehow to prove it was ours (eventhough the serial # matched the one we had), and the store sold it to someone else eventhough they said they would hold onto the item until the situation was resolved.

Also Natalie, if I am correct homes that have not sold yet do not count towards an appraisal so appraise your home see how much it is worth now and if it has already lost value before you place all the blame on this borrower. I think you will find the value has probably dropped from your previous value (unless you have owned the home a looooong time).

Aug 06, 2008 01:56 PM

Natalie Feldman

Eisner, Feldman & Grant, Inc. - Clearwater, FL

Oh Chris, these people aren't THE reason the market's in this state.

I'm not blaming them single handed for the drop in property value. It's a supply and demand issue beyond any one person's control. But that one property will create a very low comp that will have real, bottom line effects on our entire neighborhood... not $1M it's more like $10M and that's the low estimate. It's unnecessary for them to have damaged the property.

I merely want to hold them accountable for the actions they took (and we know they took them). It is not a situation like the one you relay above. This wasn't done by strangers - although a lot of vacant property is vandalized by others after the borrower's move out. This was done by the "homeowner." The challenge in many of these cases is proof. In this one, we have it.

I don't need an appraisal on my home. I know what I've lost - over $200K, but it's a paper loss. I don't have to sell. And it's not because of this borrower and their vandalism - but they aren't making the situation better or neutral - they are making it worse and they could have chosen not to.

Aug 06, 2008 03:19 PM

Chris Horton

Horton's Lawn Care L.L.C. - Burton, MI

Natalie- The situation I talked about above with the people coming in and taking everything was the homeowners that took everything including the sinks. The one about one of our homes yes it was strangers, but it is no different. Do you really think police that won't do anything about a stranger stealing from the home will do anything about the actual homeowners (as the foreclosure hasn't completed yet so they are still techniqually the owners) taking anything out of the home????

Also, while not pressing charges for vandelism (mainly because I don't think they can really) some banks are hitting the previous homeowners with 1099's for the loss which is even easier to prove.

Aug 06, 2008 03:50 PM

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Natalie Feldman

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