While some parts of the country would probably be elated if lenders would be a little more willing to “walk away” from foreclosures, in Chicago, it is turning into a serious problem. According to a report by the Woodstock Institute (full report to be released on Thursday of this week), nearly 2,000 “red flag” homes have been abandoned, mid-foreclosure, by lenders. When a homeowner opts to walk away from a home, they leave behind an abandoned building that can languish in the foreclosure process for months and drag down property values in the surrounding area as the property deteriorates. However, owners are not the only ones who are weighing their options and choosing to abandon ship; lenders in the Chicago area are determining that they cannot recoup the costs of foreclosure and taking a hike as well. The result: rows of abandoned homes that are stuck in limbo, neither foreclosed nor inhabited nor for sale and with no hope of any real “movement” in a positive direction.
Geoff Smith, senior vice president of the Woodstock Institute, explains the situation this way: “The steward relationship between the servicer and the property is broken…The role of the servicer is to be in charge of that property’s disposition…servicers are not living up to that standard.” While little can be done about homes that have not been repossessed, it is possible that lenders could be compelled to perform basic safety maintenance on properties that are actually real estate owned (REOs). However, currently, many REO properties are also stuck in a state of decay as lenders “skirt city rules for property upkeep” or simply cannot afford to maintain the properties.
To make matters more complicated, foreclosures that have been abandoned are not necessarily removed from the original borrower’s “tab.” This means that at some point in the future, the bank or another collections agent who purchases the lien after the loan has been “charged off” by the bank, can resume collections processes on the lien – but only if the property is still in limbo. As a result, many of these properties are not registered as vacant but rather entirely abandoned without a single document to indicate their status. This creates a “limbo land,” explains Chicago attorney Dan Lindsey, and these “mystery” properties simply continue to decay and drag down property values around them while no one – lenders, owners or municipal government – can do much of anything about them. Even liability laws cannot force the issue because once a lender charges off a loan, liability is limited.
Wells Fargo and Bank of America have released official statements saying that they are working with the city of Chicago to develop strategies to deal with the abandoned properties. Other local and national lenders refused to comment. Do you think that banks should be allowed to walk away from properties in foreclosure? How can this situation be handled to best help both homeowners and lenders? Right now, it seems like a huge, unnecessary waste.
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