A New Wrinkle - Banks Refusing To Take Back Foreclosed Properties

[Joseph Burkeson, CMI]

It is almost looking like it might be bottoming now, at least in some areas of the country.


Banks Refusing To Take Back Foreclosed Properties

Considered, March 3, 2009 · Let's say you're one of the millions of Americans facing foreclosure. You made mistakes, borrowed more than you should have — or maybe you lost your job — and now have to walk away from your house. In some parts of the country, simply walking away isn't so simple — especially if the bank doesn't want your house.

At 8:30 nearly every Monday morning, employees from the Cuyahoga County Sheriff's Office stand in a windowless room in Cleveland's Justice Center to auction off hundreds of foreclosed houses.

Hoping to buy are a few investors, bargain hunters and the rare person trying to save his or her house. Most often, it's lawyers from local law firms representing global financial institutions who claim property here.

Although these days, that's starting to change.

When there's no bid, the lender can either try to sell at another sheriff sale or do nothing. Doing nothing means the foreclosure is not complete.

And Cleveland foreclosure attorney Larry Rothenberg says doing nothing is becoming more popular.

Lenders Not Bidding

"Lately, lenders are finding that the costs to purchase property at the sheriff sale and resell it, and the likelihood of finding a buyer weigh against a decision to buy the property. And so it's become more likely than before that lenders are not entering bids at sheriff sales," Rothenberg says.

That changes the foreclosure equation. Rick Sharga of RealtyTrac says employees at his online foreclosure sales company have heard of other cities where lenders are walking away from foreclosures, and he worries it could spread.

"There are some urban areas where you've had rapid price depreciation, where you also have extreme unemployment issues, and nobody's buying the properties," Sharga says. "All those conditions need to be in place before a lender is going to be motivated to do what you're seeing happen now."

And when lenders don't complete a foreclosure action at a sheriff sale, the house stays in the homeowner's name.

'It's Not My House'

Sharon Little says she was shocked to find out she was still listed as the owner of a rental property on a busy Cleveland street. She walked away from the house in 2006 when she declared bankruptcy. Since then, thieves have stripped the house of siding, copper plumbing, and even windows. She found out her name was still on the deed only when she got a summons last October to appear in housing court.

"Eventually, they're going to tear this house down," Little says. "Somebody's going to have to foot the bill, and frankly I think it should be the bank because it's their house. It's not my house really, so ..."

Begging For Foreclosure

But the city of Cleveland is writing tickets for housing code violations to whomever is listed on the deed.

Bus driver Curley Jackson has been on the phone with his loan servicers trying to persuade them to foreclose on property he can no longer afford.

"I surrendered these properties back to you all. I said, 'You keep leaving them in my name, I'm getting these tickets.' They don't care. They're not getting a ticket. They're not getting threatened with jail," Jackson says.

Cleveland Housing Court officials say they are now seeing homeowners take matters into their own hands. Little, for instance, wrote up a deed and gave her house to her lender.

"That's because it was their house from the jump, so that's what we do — give it right back to them. You can keep your house. I don't want it," Little says.

Untouchable Real Estate

Bankruptcy attorney Richard Nemeth has asked state lawmakers to propose a bill that would force lenders to completely follow through with foreclosure or forgive the homeowner's debt.

"It's a really sad set of affairs when people don't want to touch a piece of real estate with a 10-foot pole," Nemeth says.

County officials in Cleveland hope a new land bank will help solve this problem by giving lenders a place to dump unwanted property. In the meantime, the city is forced to use scarce tax dollars to maintain or demolish some of these unwanted foreclosed houses.

[Doug Edwards, CMI]

Interesting times Joe. I do demolition inspections for a local city here in Santa Rosa county. They follow the law in that if the home is beyond repair, like so many were after the rash of hurricanes we had in 2004, 2005, the city has to notify the listed owner of the city's intention of getting rid of the eye sores in neighborhoods trying to recover. If the owners do not reply the city then goes to court and has a judge determine the property is abandoned and should be demolished. Then the city sends the bill to the owners. Too many think they can just do nothing and it becomes someone else's problem but are finding out responsibilities comes with a price tag. The vast majority of the homes I do for the city are falling in, full of thick fuzzy molds, water soaked and rotting personal property and have long since become health hazards to the surrounding homes with rats, vagrants, crack heads, etc. using them for flop houses. We have the police there on more than one occasion when we do these homes. I haven't done any for a while but they are easy and profitable to do. There are only so many ways to say a home is a POS and is beyond cost effective repairs. The city fairly gives the owners six months to come up with a plan and start repairs, if no progress is done they bulldoze it at the end of the six months.

[Joseph Burkeson, CMI]

Doug,

Interesting times indeed, maybe the answer to the housing crisis in Florida is to demolish every third foreclosure starting with the homes that fail in regards to hurricane protection, killing two birds with one stone.

[Nick Gromicko]

Some have stopped paying their mortgage and walked away from their homes only to find that no bank took back the property, sometimes because it is not clear which bank owns it.

The "toxic assets" they talk about are toxic, in part, because there are so many lenders between the lienholder and the bank, that the bank is no longer in possession of the trail of paperwork needed to show it is the lienholder. And some of the links aren't even in biz anymore.

In the past, when it was almost unheard of for a homeowner to intentionally stop paying his/her mortgage, the sloppy paper trail wasn't much of a problem.

The paperwork is a mess. The best thing to happen is for the local governments to sell them for back taxes as a Treasurer only has to attempt to alert the lienholders and then advertise it in the paper to be able to reissue a clear Treasurer's deed.

[William J. Decker]

I am doing more and more inspections for villages. Here's the typical situation.

The house is in forclosure or the owner walks away. The bank hires some clown to "winterize" the property and he does a crap job. The pipes explode or the anti-freeze is the wrong kind and it eats the pipes.

Water, changing temps and mold from hell.

Then, the neighbors complain and the village gets involved.

They want the property torn down. The bank doesn't want to pay for the expense and does not want to lose the "asset".

I inspect, do mold samples and thermal and document the properties condition and give the report to the village. They sue and win.

And a real nice house (once) gets turned into a vacant lot because people (owners and/or banks) don't know what they are doing.

BTW: Air Conditioner compressor, furnace, marble countertop and appliance theft is also WAY up around here.

Go figure.

[Scott F. Coslett]

'It's Not My House'

Sharon Little says she was shocked to find out she was still listed as the owner of a rental property on a busy Cleveland street. She walked away from the house in 2006 when she declared bankruptcy. Since then, thieves have stripped the house of siding, copper plumbing, and even windows. She found out her name was still on the deed only when she got a summons last October to appear in housing court.

"Eventually, they're going to tear this house down," Little says. "Somebody's going to have to foot the bill, and frankly I think it should be the bank because it's their house. It's not my house really, so ..."

Begging For Foreclosure

But the city of Cleveland is writing tickets for housing code violations to whomever is listed on the deed.

Bus driver Curley Jackson has been on the phone with his loan servicers trying to persuade them to foreclose on property he can no longer afford.

"I surrendered these properties back to you all. I said, 'You keep leaving them in my name, I'm getting these tickets.' They don't care. They're not getting a ticket. They're not getting threatened with jail," Jackson says.

Cleveland Housing Court officials say they are now seeing homeowners take matters into their own hands. Little, for instance, wrote up a deed and gave her house to her lender.

"That's because it was their house from the jump, so that's what we do — give it right back to them. You can keep your house. I don't want it," Little says.

This is at least part of the problem.....People with the responsibility and maturity of a 10 year old were allowed to buy a house.

[Scott Keiper]

No personal responsibility. Who can I blame for my mistakes?

[Nick Gromicko]

If I borrow $1,000 dollars from you, I'm damned sure gonna do whatever it takes to pay you back.

However if I borrow money from a bank under an agreement that if I don't pay it back the bank can have the property... then perhaps I'll opt to allow the bank to take the property.

Most won't agree with me, but I see the latter as less of an ethical issue, especially when the bank is being financially supported by a government who acquires that financial support from me, by force.

[klott]

What a mess, the only ones escaping this fiasco are the stupid politicians responsible for it in the first place! To add insult to injury, we are being forced to take the losses for the lenders! It is time for a P-Party!...we need to throw the politicians in the harbor! Why do we continue to allow them to do it to us????? We elect the next bunch who promises to get us out of the mess...and all they do is screw us from a different angle! Whoopi Goldberg was on T.V. tonight, complaining about getting it from both ends now!

[nwagner]

Originally Posted by klott

What a mess, the only ones escaping this fiasco are the stupid politicians responsible for it in the first place! To add insult to injury, we are being forced to take the losses for the lenders! It is time for a P-Party!...we need to throw the politicians in the harbor! Why do we continue to allow them to do it to us????? We elect the next bunch who promises to get us out of the mess...and all they do is screw us from a different angle! Whoopi Goldberg was on T.V. tonight, complaining about getting it from both ends now!

So you are finally owning up to the fallacy of voting for closet liberal Repugnantcans to defeat overtly liberal DemocRATS? If so, congradulations for the epiphany!