Yes, there are homes that nobody seems to want. The catch? They’re generally located in depressed urban neighborhoods.
Oh, and they’re liable to have unpaid property taxes, HOA liens and other unpleasant features. That’s why they often lie fallow, deteriorating and attracting vandals.
Often, even the mortgage investors don’t want to foreclose: With unpaid obligations on top of foreclosure, rehab, maintenance and marketing costs, it’s just not worth it. So, these homes become bank walkaways. The servicers simply release their liens—and walk away.
Sounds like a great windfall for the borrowers, right? Not really. Most of them have abandoned the homes long before, and don’t want the encumbrances that go with them. In many cases, homeowners have accepted the inevitability of foreclosure and moved on—only to find that they still owe taxes or HOA dues on homes they no longer possess.
The Office of the Comptroller of the Currency (OCC) acknowledged this phenomenon in its recent directive to the mortgage servicers it oversees. It calls on servicers to recheck their valuation numbers before deciding to walk away, and to consider the "reputation and litigation risk."
Then if they choose to go ahead, they should notify the lucky homeowners that:
- The mortgage holder is not pursuing foreclosure and has released the mortgage lien
- They (the borrowers) may continue to occupy the property
- They’re obligated to maintain the property consistent with all local codes and ordinances
- They’re also obligated to pay property taxes and other debts
This directive prompted Sen. Sherrod Brown (D-Ohio) to fire off a letter to OCC head John Walsh, urging him to require servicers to complete foreclosures once they’re initiated. Why? Because these properties that lie in limbo are bad for their neighborhoods. They hinder revitalization efforts and drag down property values. Better to get them in the hands of new owners who can restore and take care of them.
This is an ironic twist for a consumer-minded politician, but it reflects Sen. Brown’s acute understanding of the problem: Cleveland (in his home state of Ohio) has the third-highest rate of bank walkaways in the country.
It’s just one more wrinkle in the ever-evolving housing meltdown.