Safeguard Properties

Vacant and Abandoned Properties: An ?Issue of National Concern?

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Industry Update
February 18, 2016

Building on the momentum of a meeting with HUD Secretary Julián Castro last week, Five Star Institute President and CEO Ed Delgado moderated an important industry panel on Thursday entitled Transforming Blighted Communities, addressing what he has called an “issue of national concern.”

Eliminating blight by accelerating the foreclosure process on vacant and abandoned properties—thus reducing the amount of time the properties are vacant—has been a goal of Delgado and the Five Star Institute for four years. Vacant properties can potentially have a devastating effect on their surrounding community because they often become magnets for vandalism, squatting, and violent crime. In extreme cases, blighted properties have even led to the tragic loss of life.

“Michaela Diemer, Mary Ellen Gutierrez, Jasmine Trotter, Anith Jones, Ahlyja Pinson … the list of names goes on,” Delgado said. “These are just a few of the hundreds of women have been raped or murdered in or near a vacant and abandoned property. They’re ordinary people. People that were mothers, wives, sisters, and daughters. The issue of vacant properties has become more than the expedient treatment of a distressed residential property. These shells have become a bastion for weapons, drugs, gangs, molestations and violent assaults. How many more must be harmed or tragically lose their life before a policy of common sense comes into play?”

Last week when he met with Castro, Delgado asked the HUD Secretary to consider opening up a dialogue with the servicing industry to talk about vacant and abandoned properties. Castro promised to look over the proposal when it reached his desk.

The panel moderated by Delgado on Thursday included Robert Klein, chairman and co-founder of SecureView and chairman of Safeguard Properties; Richard Monocchio, executive director, Cook County Housing Authority; Gina Metrakas, director of urban revitalization, Rock Ventures; and James F. Taylor, SVP, asset management and preservation, Wells Fargo Home Mortgage. The panel discussed such topics as the extent of the blight problem in the country and what threat that blighted properties pose to the communities in which they are located; the problems with using plywood to board windows in vacant and abandoned homes and whether servicers are on board with using clear board; what states and local municipalities are doing to address the blight issue; and what progress can be expected on eliminating blight in neighborhoods nationwide.

Source: DS News

Additional Resource:

Communities, Mortgage Servicers Tackle Urban Blight (MBA NEWSLINK 2/23/16)

Treasury Announces Additional Investment in Hardest Hit Fund

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Industry Update
February 19, 2016

Fifth Round of Funding Will Provide $2 Billion in Additional Assistance to Struggling Homeowners and Communities

WASHINGTON – The U.S. Department of the Treasury today announced it would exercise its authority to obligate up to $2 billion in additional Troubled Asset Relief Program (TARP) funds to the Hardest Hit Fund (HHF) program. The additional investment in HHF will enable participating state Housing Finance Agencies (HFAs) to continue assisting struggling homeowners and stabilizing neighborhoods in many of the nation’s hardest hit communities. The fifth round of HHF funding will be allocated among participating HFAs in two phases of $1 billion each. States receiving additional funds will have until December 31, 2020 to utilize their HHF funds, an extension from the current program end date of December 31, 2017.
 
“Today’s announcement is the next step in the Administration’s effort to help struggling homeowners recover from the financial crisis, and strengthen the housing recovery,” said Treasury Secretary Jacob J. Lew. “Thanks to a bipartisan group of members of Congress who helped secure additional funding for the Hardest Hit Fund, we will be able to provide significant resources to hard hit states and target these critical resources towards programs that we know have helped Americans avoid foreclosure, and stabilized housing markets, including blight elimination programs.”
 
The first phase will allocate $1 billion using a formula based on state population and the HFA’s utilization of their HHF allocation to date. The use of state population as a primary factor is consistent with previous Hardest Hit Fund allocations, and consideration of utilization will prioritize states that have demonstrated the ability to effectively deploy funds. In order to qualify for funding in the first phase, HFAs must have utilized at least 50 percent of their existing HHF allocations.

The second phase will utilize an application process open to all participating HFAs. This phase will allow Treasury to focus additional resources on HFAs that have significant ongoing foreclosure prevention and neighborhood stabilization needs, a proven track record in utilizing funds, and successful program models to address those needs. HFAs will have until March 11, 2016 to submit applications, and will be allowed to request amounts up to 50 percent of their existing HHF allocation or $250 million (whichever is lower). Treasury anticipates announcing the second phase allocations by the end of April.
 
“While the housing market has strengthened in recent years, there are still many homeowners and neighborhoods experiencing the negative effects of the financial crisis,” said Mark McArdle, Treasury’s Deputy Assistant Secretary of Financial Stability. “The additional HHF funds authorized by Congress will allow states to continue their efforts to stabilize local communities and help struggling families avoid foreclosure.”
 
The Hardest Hit Fund was created in 2010 to provide $7.6 billion in targeted aid to 18 states and the District of Columbia deemed hardest hit by the economic and housing market downturn. The program was designed to leverage the expertise of state and local partners by funding locally-tailored foreclosure prevention and neighborhood stabilization solutions.  As of the end of the third quarter of 2015, HHF has disbursed approximately $4.5 billion of the $7.6 billion obligated to the program, on behalf of homeowners and stabilization efforts, and assisted nearly a quarter of a million homeowners.
 
For more information on the latest round of HHF funding, please see the FAQs and for further state-by-state information please refer to the Treasury HHF page.  
 
Source: U.S. Department of the Treasury (full press release)

Servicers Seek More Say in Regs that Threaten Profits

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Industry Update
February 18, 2016

Stop complaining, and start doing something about it.

That is the mantra of more and more mortgage servicers worried about the long-term harm to their business from rising compliance costs.

Executives are more actively discussing with regulators how rules might be streamlined while simultaneously experimenting with automation or economies of scale that could raise their productivity.

“Servicers are coping with all the increased pressures on costs,” said Kevin Brungardt, the chairman and chief executive of RoundPoint Mortgage Servicing in Charlotte, N.C.

Regulators have a tremendous hand in determining servicers’ costs, J. David Motley, vice chairman of the Mortgage Bankers Association, told attendees Wednesday at the group’s servicing conference in Orlando, Fla.

Motley, the vice chairman and president of Colonial Savings in Fort Worth, Texas, said he has seen his company’s per-loan servicing costs rise to $195 recently from $130 in 2012 despite the fact that the delinquency rate — typically a big factor in driving up costs — has fallen to 3% from 4% during that same time period. He blamed the jump in expenses on increased spending to satisfy new government rules.

Servicing executives have been seeking fixes in existing regulations and getting more involved in the shaping of future rules and policies.

Some efforts are reactive, such as attempts to better understand how to work within the Federal Communications Commission’s new limits on robo-calls.

Banks and other businesses may not place robo-calls to a cellphone without the consumer’s prior consent. Violations are subject to strict liability – $500 for each unsolicited call, or $1,500 if the company intentionally makes a call after the cellphone user denies permission. Callers are liable even if they have the permission of the person they are trying to reach but the phone number has been reassigned to another individual. There are some exceptions, such as in cases to collect on government-backed debt.

The rules complicate servicers’ jobs, but it is not impossible to get the consent of borrowers in order to stay in touch with them, said Barry Hays, senior vice president and co-founder of interactive voice response vendor TeleVoice.

“Servicers, through all of their communication channels, find creative ways to check for and solicit consent,” said Hays.

Other efforts to minimize regulatory risks are more proactive. Some Quicken Loans executives at the conference, for example, were wearing “One Mod” T-shirts to call attention to efforts to develop a standard for the loan-modification process.

The standardization push stems from recent meetings involving the mortgage industry, government agencies and other players about how mod policy should be shaped after the Home Affordable Modification Program ends, said Mike Malloy, the vice president of servicing at Detroit-based Quicken Loans.

Standardized mod features could include simpler documentation and payment reductions policies that could make the process more equitable across the country, Malloy said.

Government agencies have been considering the notion but do not appear to be committed to it. Malloy described the effort as a work in progress.

Allison Brown, program manager in mortgage servicing at the office of supervision policy at the Consumer Financial Protection Bureau, said her agency’s needs are different from, say, Fannie Mae’s and Freddie Mac’s when it comes to the question of what they would want to see in any modification program. Fannie and Freddie might want mods that fit in with their secondary-market programs, but the CFPB is more interested in making existing modifications clear and consistent and holding lenders accountable for their practices.

Since the government’s HAMP program has been extended and the worst of the housing crisis has passed, some servicers at the conference questioned whether a successor is necessary. However, most agreed it is worth exploring whether mod standardization can, will or should occur.

“Can we standardize that economic decision? I don’t know,” said Ed Fay, founder and CEO of Fay Servicing in Chicago.

Being more actively involved in discussions of possible future government policy instead of just focusing on current rules could help give the industry more control over its servicing costs, Motley said.

“We can decide to dwell on the past, or we can learn from it,” he said.

Source: National Mortgage News

Rhode Island to Get $9.68 Million More From Hardest Hit Fund to Stave Off Foreclosures

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Industry Update
February 19, 2016

Rhode Island was among the top 10 states with the highest percentage of loans in foreclosure, according to a delinquency survey for the third quarter of 2015.

PROVIDENCE, R.I. — U.S. Sen. Jack Reed’s office on Friday announced that Rhode Island will get an additional $9.68 million in foreclosure prevention funding from the U.S. Treasury Department’s Hardest Hit Fund.

In addition, “Rhode Island will have an opportunity to apply for approximately $39 million in additional Hardest Hit Fund resources if the state demonstrates need and the ability to quickly deploy these funds effectively,” the announcement added.

Reed is a senior member of the Senate Banking Committee, which oversees federal housing policy, and he is the Ranking Member of the Appropriations Subcommittee that oversees the funding for federal housing programs.

First announced in February 2010, the Hardest Hit program provided federal funding to the 18 states most affected by home foreclosures.

Reed’s announcement added that Rhode Island was among the top 10 states with the highest percentage of loans in foreclosure, according to the Mortgage Bankers Association National Delinquency Survey for the third quarter of 2015. Also, “Rhode Island’s percentage of loans in foreclosure is more than 36 percent higher than the national average, and its serious delinquency rate is more than 38 percent above the national average.”

Before this latest award, Rhode Island had received $79 million in Hardest Hit funds to help prevent foreclosures and stabilize the housing market, according to Reed’s office.

At one point, the state Hardest Hit program stopped accepting applications due to insufficient funding, but the Consolidated Appropriations Act of 2016 made another $2 billion in Hardest Hit assistance available.

Source: Providence Journal

Rhode Island Supreme Court Gives HOAs Priority Above Mortgage Liens

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Legislation Update
February 19, 2016

Condominium association liens now hold “super-priority”

[Update 1: Earlier version stated homeowners in one case where it is actually lenders.]
 
The Supreme Court of Rhode Island supports the homeowner’s association “super priority” concept, making The Ocean State part of a growing list of states that are, in some fashion, ruling in favor of making HOA liens a priority above mortgage liens.

With the Rhode Island Condominium Act allowing lenders or the condominium association a lien for up to six months of delinquent assessments, this super-priority is superior to the lien of a first mortgage holder. Which means the HOA has the authority to foreclose on a home and extinguish a mortgage non-judicially.
 
In the latest mortgage banking update provided by law firm Ballard Spahr, they say the court reached this conclusion even though a purchaser at the condominium association foreclosure sale may pay just a fraction of the amount of the first mortgage lien.
 
Even though the court acknowledges it will cause an unmerciful effect on first mortgage holders, they surmised that homeowners have to ability to either pay off the super-priority portion of the condominium association lien and add such amounts to the borrower’s principal, or require the borrower to pay association assessments into escrow.
 
Since the ruling came to a 4-1 decision, one justice argued that the Act didn’t contain clear enough language to conclude that the legislature intended such a radical change in venerable principles in the law governing secured transactions.
 
HOA super liens are an issue as of late. The court recently upheld a law that allows homeowners associations to foreclose on homes ahead of first-mortgage providers, giving HOA assessments “super-lien” status that extinguishes first deeds of trust.
 
Recently the Nevada Supreme Court upheld a law that allows homeowners associations to foreclose on homes ahead of first-mortgage providers, giving HOA assessments “super-lien” status that extinguishes first deeds of trust.
 
With this ruling, this affects men and women in the military who are not passed due because they couldn’t pay on time, but because they were away at war. But thankfully in states like Texas, a bill was passed that prevents the HOA to foreclose on active military.
 
“The result of these statutory interpretations has been a wave of mortgage lenders being left with large unsecured loans as a result of homeowner and condominium association foreclosure sales,” say the authors Abran Vigil, Joseph Sakai and Joel Tasca.
 
“This decision will likely have the same effect on lenders conducting business in Rhode Island,” they conclude.

Source: HousingWire

Rhode Island Bills Set Sights on Foreclosed Properties

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Updated 4/5/17: H 5265 was introduced on January 27 and was recommended to be held for further study by the House Judiciary Committee on March 1.

Link to full text

Legislation Update
February 10, 2016

H 7281

  • “MORTGAGE AND FORECLOSURE SALE” was introduced on January 21 and was referred to the House Judiciary Committee.
  • Explanation (The Legislative Council): This act would require mortgagees, upon filing notice of intent to foreclose against a mortgagor, to file a copy of that notice with the city or town municipal clerk, and appoint an agent for service of process within the state. Further, the act would require a mortgagee who initiates a foreclosure proceeding against a residential property located in the municipality, to maintain the property in accordance with state and local housing codes if the property becomes vacant during the foreclosure proceeding.
    This act would take effect upon passage.
  • To view the text of the proposed legislation, please click here.


H 7241

  • “FORECLOSED PROPERTY UPKEEP ACT” was introduced on January 20. On January 26 the House Judiciary Committee recommended measure be held for further study.
  • Explanation (The Legislative Council): This act would establish the Rhode Island foreclosed property upkeep act and would require a purchaser of foreclosed property to maintain the property in accordance with the Rhode Island housing and maintenance and occupancy code and also to identify an agent in Rhode Island for service of process.
    This act would take effect upon passage.
  • To view the text of the proposed legislation, please click here.

Source: State of Rhode Island General Assembly

Proposed Legislation in Maryland Aims to Regulate Foreclosed Property Maintenance and Registration

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Legislation Update
February 23, 2016

MD HB 0664

  • Title: Foreclosures – Responsibility for Maintenance of Residential Property and Registration Requirement
  • Synopsis (Maryland General Assembly ): Establishing that, on and after the filing of an action to foreclose a mortgage or deed of trust on residential property, the secured party shall be responsible for maintenance of the property until the foreclosure sale occurs; requiring the secured party to submit a registration to the Foreclosed Property Registry within 30 days after the filing of a foreclosure action on residential property; requiring the registration to be in a specified form and contain specified information; establishing fees; etc.
  • To view the text of the proposed legislation, please click here.
  • Status: First Reading 2/4/2016 – Hearing scheduled 2/23/2016 1:00pm


HB 1171

  • Title: Foreclosed Property Registry – Responsibility for Maintenance of Residential Property, Registration Requirement, and Access to Registry
  • Synopsis (Maryland General Assembly ): Establishing that, on and after the filing of an action to foreclose a mortgage or deed of trust on residential property, the secured party shall be responsible for maintenance of the property until the foreclosure sale occurs; requiring the secured party to submit a registration to the Foreclosed Property Registry within 30 days after the filing of a foreclosure action on residential property; requiring the registration to be in a specified form and contain specified information; establishing fees; applying the Act prospectively; etc.
  • To view the text of the proposed legislation, please click here.
  • Status: First Reading 2/11/2016 – Hearing scheduled 3/1/2016 1:00pmSource: Maryland General Assembly

Additional Resource:

Bill would address blight at Frederick City properties in foreclosure (The Frederick News-Post 2/23/16)

Oswego County Receives Approval to Proceed with Establishment of Land Bank

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Land Bank Update
February 2, 2016

The County of Oswego was informed recently that the board of directors for New York State’s Empire State Development Corporation (ESD) has approved the county’s application to establish a land bank as part of their efforts to combat the decline of housing stock and housing values throughout their various communities.

New York State’s Land Bank Program was signed into law by the governor in July of 2010. Governmental entities that are approved by ESD are authorized to create a not-for-profit corporation whose purpose is to facilitate the return of vacant, abandoned and tax delinquent properties to productive use. Oswego County will join a very small group of proactive municipalities across New York that have chosen to use this highly effective tool to address dilapidated, distressed or marginal properties that are impairing neighborhoods and diminishing property values in otherwise healthy communities.

Oswego County Legislature Chairman Kevin Gardner said, “Those of us who live, work and raise our families here appreciate all that we have to be thankful for. However, like many other aging industrial areas, we also know that there are challenges that we face when trying to encourage others to call Oswego County their home. The quality of our neighborhoods and the housing stock in general is something that we can have some influence on.  The Land Bank is the perfect tool to help us do so.”

Oswego County Legislator Shane Broadwell, the lead organizer of the Oswego County Land Bank initiative said, “The growing number of abandoned properties in Oswego County is a burden on our economy that is steadily weakening our housing market. No single factor caused those abandonments, but about a year ago we identified a tool that could provide our county with solutions and we immediately sought to implement it. Today, I am thrilled to announce that New York state has approved our application to form an Oswego County Land Bank. Land banks are strengthening neighborhoods in many counties across New York state and today we join them to begin the important work of revitalizing ours.”

He added, “It will take some time to officially form the not-for-profit organization and establish policies that will be the most effective for our specific local issues, but one of the first activities that the land bank will pursue will be preparing an application for additional funds to be made available to land banks through the NYS Attorney General’s office. If approved, these funds, coupled with other resources and funding already committed by the County and the City of Oswego, will help capitalize the program and set the stage to begin to address this systemic problem.”

For additional information on this exciting new initiative  contact David Turner, the county’s director of Community Development, Tourism and Planning at 349-8260 or   dturner@oswegocounty.com.

Source: OCW

Legislation Could Help Annapolis Battle Blighted Buildings

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Legislation Update
February 9, 2016

Annapolis officials are hoping the passage of state legislation will make it easier for them to monitor and punish owners of vacant or blighted buildings throughout the city.

Senate Bill 248 would allow municipalities across the state to create registries and a remediation fund from a special tax rate for vacant and blighted buildings. The fund would be used to repair the property.

Senator John Astle, D-Annapolis, sponsored the legislation and spoke at Tuesday’s hearing in the Senate Education, Health and Environmental Affairs Committee.

He was joined by several city officials who argued that Annapolis would benefit from the bill because the city has not had success taking property owners to court after municipal fines are levied. The ultimate goal is to track properties and give the city the tools needed to prevent vacant and blighted properties from falling into condemned states or demolition by neglect, he said.

Demolition by neglect is when lack of repair and maintenance create unsafe properties that are beyond repair and eventually torn down.

“I walk by three abandoned buildings on my way to session,” Astle said. “We’ve got to do something.”

The city could create a list of the vacant and blighted properties, which they currently do, but a registry gives them legal weight that could help in future court cases, said Mike Leahy, city attorney.

Judges keep giving the property owners time to repair the property, but the owners never do, he said.

According to the fiscal note, there are 21 blighted properties in the city, all of which are residential, though the legislation would allow the city to register both residential and commercial properties.

The Department of Neighborhood and Environmental Programs determines a property is blighted based on a number of unresolved infractions. If it poses a public health risk, the case is taken to District Court.

“One of the most vexing problems I see is the staff in the law office spend a lot of time going to District Court on these properties,” Leahy said.

Sen. Ronald Young, D-Frederick, wondered if the city could already do this.

“I just don’t see what the bill does that you can’t do,” Young said.

Leahy asserted that the city has been told they couldn’t create the registry and remediation fund without the state enabling legislation.

At a Jan. 22 Anne Arundel delegation meeting, Speaker of the House Mike Busch, D-Annapolis, questioned the city’s position on the legislation, which focuses on private properties.

The old Annapolis Public Works building on Spa Road has been condemned and the city hasn’t fixed the property. Busch called the building a “pet peeve” of his.

“You know, you’ve got a building out there in the middle of Spa Road, where you have residential housing coming in at both directions … what’s the status of that?”

When asked about the Jan. 22 comment, Mayor Mike Pantelides admitted that it is a somewhat hypocritical position for the city to take, trying to force owners to fix their blighted properties while the city has failed to do so on its own.

There are plans to rebuild the public works building on the current property, he said.

“The city looked at several different options, the old Capital building, the armory, but they didn’t work out,” Pantelides said. “No matter what, that building is being torn down.”

Opponents to SB 248, bankers and commercial property owners, had concerns about the breadth of the legislation and its impact on commercial properties.

Mindy Lehman, Maryland Bankers Association vice president of government affairs, said the statewide legislation could create hundreds of methods of handling vacant and blighted properties. Each city could come up with its own methods of creating the registry and remediation fund.

It also could cause overlap problems with foreclosed properties, which are typically vacant but not always blighted.

“If this starts to pop up across the state, that could be difficult to comply with as they’re rolled out,” she said.

As for commercial properties, these can be vacant for longer than residential properties as owners search for the right business to bring into the building, said Bryson Popham, an attorney representing commercial property owners.

The 110 Compromise St. building is an example because it has been vacant, but it isn’t blighted, Popham said.

“I wouldn’t want to see the net cast so wide that it would pull these buildings in when the owners wants to get back on the tax roll,” Popham said.

Source: Capital Gazette

Additional Resources:

SB 248 (current text)

Analysis of SB 248 (Maryland General Assembly Department of Legislative Services)

How to Prevent Zombie Foreclosures and Improve Neighborhoods

Posted on by Safeguard

Legislation Update
February 18, 2016

In judicial-foreclosure states, better judicial supervision of mortgage-foreclosure cases can prevent zombie foreclosures, lessen blight, and improve neighborhoods.

A zombie foreclosure occurs when a mortgage-foreclosure case in litigation becomes stalled without good reason. The defendant/owner/mortgagor hasn’t filed for bankruptcy, isn’t seeking loan modification, and hasn’t been deployed for the armed services. The lender that started the case simply isn’t proceeding diligently to conclude the case. The lien of the mortgage, and the stalled or slow-moving lawsuit, cloud title, thereby paralyzing the parcel into a zombie state where neither the plaintiff/lender/mortgagee nor the defendant/owner/mortgagor is maintaining or repairing the parcel.

The foreclosure case is not finished and the lender doesn’t own the parcel yet, so the lender isn’t repairing or maintaining, or assuming owner duties. And the owner/defendant who couldn’t afford the mortgage loan can’t afford to repair, maintain, or put money into a home he thinks he has lost or will lose to foreclosure anyway. The parcel falls into disrepair, and becomes a blighting influence on the block and the neighborhood. If the owner in a stalled foreclosure case moves out and abandons the parcel, the zombie problem worsens. The downward spiral in the physical condition of the house and the blight become even more pronounced.

Judges play a critical role in this process. As supervisor of the litigation before them, judges can take simple steps to net huge neighborhood-improving results. They can ensure that the plaintiff/lender/lawyers move the case along to completion. They can require periodic scheduling conferences or status reports from the lender lawyers to ensure that the case is progressing. Those simple steps, inherent in the court’s power to control court dockets and manage cases, will have huge impact on the parcel, its physical condition, the neighbors, and the neighborhood. Judges can simply reinforce the rules of professional conduct that the plaintiff/lender/lawyers must follow; to, in good faith, diligently pursue and advance the lawsuit that they filed to actual completion and to refrain from acting in a way that causes harm to others or unnecessary delay. The ABA Model Rules of Professional Conduct require lawyers to act with reasonable diligence and promptness in representing the client (Rule 1.3), to make reasonable efforts to expedite litigation consistent with client interests (Rule 3.2), and to not use means aimed at causing delay or burden to third persons (Rule 4.4).

The Milwaukee County, Wisconsin Circuit Court, and Judge Nancy Margaret Russo in the Cuyahoga County, Ohio Common Pleas Court have adopted measures mandating periodic scheduling conferences to ensure that mortgage-foreclosure cases advance and don’t stall. Judge Russo said, “it works. We move properties fast…neighborhoods are safer.”

While each state’s mortgage-foreclosure law is unique, there are commonalities. The lender lawyer files a foreclosure complaint, the lender gets a judgment of foreclosure, the judgment starts a redemption period in which the owner can pay off the loan to stop the foreclosure, and if the owner doesn’t redeem, the parcel gets scheduled for auction or sheriff sale, and the parcel is sold to the high bidder. The Court confirms the sale, and a sheriff or foreclosure deed gets issued to the buyer.

Note the anomaly. Unlike other litigation where the judgment ends the case, in mortgage-foreclosure litigation, the judgment doesn’t end the case. There are post-judgment steps to accomplish (wait-out redemption, sheriff auction, confirmation of sale, deed) before the case can come to a true end when the sheriff or foreclosure deed gets issued.

In distressed urban neighborhoods, where home values and conditions have declined, lenders and their mortgage servicing companies can have incentive to bring foreclosure cases to induce redemption (loan payoff). If the case filing, however, doesn’t result in loan pay-off, they also have incentive to not finish the case. Lenders don’t necessarily want to own the homes (they don’t want to add “REO,” bank-owned, parcels to their inventory) because if the lenders own, they do have to maintain, repair, manage, and sell. While lenders don’t have to bid at the sheriff sale or foreclosure auction, if it is unlikely that there will be bidders who will bid an amount to reasonably minimize the lenders’ loss, the lenders sometimes freeze, and put the foreclosure litigation on hold, zombie-izing the parcel and the foreclosure case.

It is at this point, in the post-judgment, post-redemption period, when the court can step in with the simple steps to stop the zombie state. The court should require the lender lawyer to advance the case and schedule the post-judgment auction sale. If no one wishes to bid, then the lender and lender lawyer should move for dismissal of the case, and satisfy the mortgage of record, to finalize the case in that manner, and conclude the litigation and remove the cloud on title. With the cloud removed, and the foreclosure case ended, the defendant/owner/mortgagor is clearly responsible for the parcel.

One way or another, the lender lawyer that invokes the judiciary by filing a foreclosure lawsuit must be held accountable by the court to finish the case, either by consummating the post-judgment duties to get a sheriff or foreclosure deed issued to another who will be responsible for the parcel and its upkeep, or by dismissing the litigation if the lender or third parties don’t want to own the parcel. Requiring case completion by sale or dismissal removes the cloud on title caused by foreclosure.

Better judicial supervision of mortgage-foreclosure cases truly can prevent zombie foreclosures, lessen blight and improve neighborhoods.

Source: The Judicial Edge