One topic that has become lost in the fray of the current economic recession and crisis has to deal with banks and whether they actually walk away from properties. The question may seem like an odd one to many industry insiders, and even more confusing for millions of homeowners who have been, or are, facing foreclosure but aren't quite certain what they can do about any of it.
The rules aren't etched in stone about how to set out dealing with these issues. There's no blueprint to follow and what one bank or financial institution does isn't necessarily right or wrong, legal or not, but this doesn't mean that there aren't still a host of questions lingering in the air throughout the entire process.
Foreclosed homeowners remaining behind
As property values across the board have plummeted in the past two years, many financial institutions have either ignored foreclosed properties or walked away from them altogether. The process moved forward to a certain point and then all the soldiers seemed to disappear into the woodwork. Homeowners who were facing this nightmare of foreclosure waited with bated breath for the final eviction notice that never came.
So they stayed. Rent free. For months. And months, and months. Still waiting. Eventually their disheartened lives seemed to have some hope. If they were wise, they would have put that money that otherwise would have gone to the mortgage payment into a savings account, or escrow. If they weren't wise, then they spent it, assuming that if it sat in a bank account that the bank would eventually be able to seize it for past payments.
The envy of neighbors
Of course, families that remained behind in foreclosed homes would have to endure the snickers and sneers of certain neighbors who were still struggling to keep up with their payments, still scrimping and saving just to survive while the foreclosed family would take one vacation after another, buy the speed boat, or the new car, new high-def TV, jewelry, and more.
Now, as those months may have turned into years, still with no payments made and no word from the bank or the sheriff demanding that they vacate the premises, the comfort has become palpable -they're living the good life now. No need to worry anymore, right? After all, even if eviction papers are served next week, they've still gotten away with the best deal imaginable in this situation.
Before celebrating the wondrous nature of this situation, think twice
Yet something has arisen, a new dilemma, or situation, that will lead many of these foreclosure squatters, if you excuse the term, into another form of financial ruin, or at the very least, heartache. The situation is that many of the banks that owned the liens on these homes have walked away from them completely. When the values of the houses decreased so drastically that they were deemed unrecoupable losses, they decided that instead of foreclosing, and thus holding the deed and financial burden on them, they would skip that final process and write the entire thing off.
What does this mean, then, for the former -or current- property owner? Quite a lot, potentially. Taxes are still owed on the property, even if these people haven't been paying their mortgage. Depending on the assessed value of the home, this could run in the several thousand dollar range and if the bank never finalized the foreclosure process, then the homeowner may, in all likelihood, still be responsible for those taxes.
And taxes are just the beginning
Another quagmire that opens up with regard to this situation is that even though the bank, or lender, initiated the foreclosure process, until it is finalized, in many states, the homeowner is still liable to past payments that hadn't been made. What this means is that homeowners who have decided to stay in their foreclosed homes, without making any kind of monthly payment, can still be held liable for them and the banks can ultimately file collection claims against them.
At first blush, staying in a home for as long as one can after foreclosure may seem like a bargain, but eventually the bill collector comes calling. The best advice to offer clients who face this situation is to set aside the money they would have spent on the mortgage for either a future rent or taxes or any moneys attempting to be collected later on. If the banks walk away and never come calling again, then the homeowners will have that much more to put toward a new house in the future. If the bank does come calling, then they're protected and ready to pay what is owed.
Preparation is always the best solution.
David Reinholtz is a professional Mortgage expert in Real Estate Industry. David is also a sales and marketing expert and trains professionals in every career field. David has personally trained tens of thousands of loan officers, mortgage brokers, real estate agents and individuals through The Close More University Seminar Series, LoanOfficerSchool.com Classes, Correspondence and On Line Learning, and countless private engagements and training events throughout the country.
David is the Founder and CEO of LoanOfficerSchool.com, an approved education provider for The Conference of State Bank Supervisors and The National Mortgage Licensing Systems' (NMLS) required pre-licensing education and continuing education.