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Many homeowners are in limbo these days because even though they haven’t paid their mortgage for months, their lender has yet to foreclose. We’ve discussed this on a number of occasions – over a few years — here on this blog, ie:
Foreclosure Advice: What to Do When You’ve Stopped Making Mortgage Payments, But the Bank Won’t/Hasn’t Foreclosed
Home Foreclosures: Why So Many Homeowners are In Limbo When Trying to Refinance or Modify Their Home Loans Now
Foreclosure Advice: “My Debt Has Been Discharged in Bankruptcy but My Lender Hasn’t Foreclosed? Do I Still Have to Pay HO Insurance, Property Taxes, HOA Fees, Etc.?”
Nowadays, we have more insight.
What Is a Bank Walkaway?
Many banks are simply abandoning many properties instead of foreclosing on them. It’s what’s called a bank walkaway, of which the official definition is:
A bank walkaway is a decision by a mortgage lender (a bank) to not foreclose on a defaulted mortgage (when the borrower has ceased to make the payments), or to not complete foreclosure proceedings (to “walk away” from the mortgage). These are sometimes referred to as abandoned foreclosures or stalled foreclosures, though this latter term is also used more broadly when the foreclosure process has stalled for other reasons.
Why Banks Walk Away from Certain Properties Instead of Foreclosing
If you’re thinking, “Why would a bank walk away from a property,” the answer is simple economics. In most cases, it’s because the costs of foreclosing – which includes everything from legal fees to ongoing maintenance— often exceed the value of the property.
And, this is what can present major problems for homeowners. Why? Because many think that once their lender initiates foreclosure, then it’s time for them to skedaddle. But hold on, that’s usually not the case, especially today. As we discussed in a recent post here, unless and until your lender officially forecloses, the best course of action is to stay put because as the record of owner of the property, YOU are still responsible for the upkeep of the property. You can be fined for everything from HOA fees, to city fines for an unkempt property.
Take the case of homeowner Jeannette Smith, a Cleveland Heights resident. Her lender initiated the foreclosure process – to the point of it being put up for auction on the courthouse steps. But, her property wound up being a “bank walkaway.” Following is what eventually happened to her.
Jeannette faced foreclosure several years ago and left her property at the point of Sheriff’s sale. In doing so, she found alternative housing and signed a two-year lease agreement. Shortly thereafter, she found out that her mortgage servicer ultimately withdrew its foreclosure action. Jeanette was unable to break her newly-signed lease and was left with a vacant property, and was cited and charged by the City of Cleveland Heights for the cost of maintenance.
This unfortunately all-too-common story illustrates why it’s important to stay put – unless and until the foreclosure process is complete.
Now that we’ve discussed some background on bank walkaways, let’s discuss some signs of it.
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5 Signs Your Bank May Have Walked Away from Your Home
1. Have Property Taxes Been Paid? Usually, after a homeowner stops paying the mortgage and other fees associated with homeownership (eg, property taxes, HOA fees, homeowners insurance), the lender will step up to the plate and pay these.
If the lender hasn’t paid property taxes – especially for 2 years or more – this is a sign that they may have walked away from the property.
2. Is the Lender Paying for Insurance on the Property? Same reasoning as above applies. Learn lender-imposed insurance on properties in foreclosure.
3. Is the Property Being Maintained? Once a homeowner who’s facing foreclosure leaves their home, the lender will usually step in and maintain it via property preservation companies.
As an aside, this is one reason lenders LIKE for homeowners to stay put – even when they’re not paying the mortgage. It costs to maintain empty properties, but if the homeowner stays put, then lenders don’t have to spend money to maintain the properties. Also – because the home is occupied, lenders don’t have to worry about crime/vandalism of an “abandoned” property.
4. Has the Foreclosure Process Been Started? In a normal real estate market, once a homeowner misses a couple of mortgage payments, they’re usually served with foreclosure papers. Not so today. It can take lenders months – or years! – to get around to doing so. If you stopped paying your mortgage months (or years ago) and you still haven’t been served with foreclosure papers, then there might be aslight chance that your lender has walked away from your property.
This is one of the weakest signs that your bank has walked away from your property by the way, as it’s taking lenders a few years in many cases to get around to even starting the foreclosure process.
5. How Long Ago Was the Foreclosure Process Initiated? Piggybacking on the last point, in many cases, even when a lender initiates the foreclosure process, many of them don’t complete it. Why? As explained in the New York Times article, Banks Starting to Walk Away on Foreclosures:
Oftentimes when the foreclosure [process] starts out, it’s a viable property . . . [but] the soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders’ decisions to walk away, said Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors’ rights firms in the country.
Again, simple economics.
It’s difficult to find a lot of hard and fast data on bank walkaways, as many lenders do it “quietly,” as one article put it. But, if all of the above factors relate to your property, your lender may have abandoned any interest in your property.
It’s highly unlikely that lenders are walking away from properties in good condition in decent neighborhoods. So don’t get your hopes up if this applies to you.
How to Buy a Bank Walkaway Property
If you’re interested in purchasing a bank walkaway property, be prepared to do some digging and be patient. Real estate laws vary from state to state, in and many cases, from county to county – especially when it comes to purchasing foreclosed properties (eg, tax sales, bank walkaways, short sales, etc.).
Following is the response an attorney gave to a homeowner who asked about acquiring the abandoned property next to his home.
You would need to talk to the tax assessor to seek to acquire the tax deed before sale, it is up to them to allow you to buy the tax deed and acquire the house. But if you do so, then the bank still has a lien and you take the house subject to that lien and the bank can redeem or then come back and subsequently seek to sue you for the balance on the lien. The other option is that you can contact the bank and negotiate the purchase with them and then you would have to pay off the taxes as well.
Following is more insight into how to proceed with lenders who won’t foreclose. And, here’s an interesting series on what happens when a bank won’t officially foreclose (even after initiating foreclosure proceedings). It provides real insight into the frustration many homeowners facing foreclosure have with lenders these days.
Hope you’ve found this info on bank walkaways helpful. If so, please share it on your social media outlet of choice using the Share bar at the end of the very end of this post, or the one at the very beginning of it.
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Copyright ©2012 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author. Legal Disclaimer: The information dispensed on this blog is not to be taken as legal advice; it is for general purposes only. Please consult a qualified attorney — in your jurisdiction — before taking any action based on the information listed here.