The Consumer Financial Protection Bureau is looking into how bank "walkaways" from distressed homes are hurting borrowers and how to rectify the situation.
In a typical scenario, a mortgage servicer may initiate foreclosure on a home -- forcing the owners to leave -- but ultimately may not follow through if the cost of repairs exceeds the property value. The borrowers are then saddled with taxes and maintenance expenses for the property, often with no notification from the servicer. "There is direct borrower harm if a borrower believes a foreclosure on their property has been conducted and they are no longer responsible, and months or years later find out that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about," explains the CFPB's Laurie Maggiano. Meanwhile, the "zombie foreclosure" remains empty and, attended to by neither the owners nor the servicer, becomes an eyesore.
According to RealtyTrac, there are more than 150,000 vacant or abandoned dwellings for which the servicer has not taken title. Maggiano believes the zombie foreclosure epidemic could be addressed by creating a standard definition of "abandonment;" expediting the foreclosure process so that vacant homes are sold faster to new owners or nonprofits; and creating a national registry of such homes that would improve communication among servicers and municipalities.