Strategic Defaults: It’s Not Just for Borrowers Any More
Banks and servicers are also walking away from properties at the expense of surrounding neighborhoods.
Palm Coast, FL – January 14, 2011 – The term ”Strategic Foreclosure” has been used to describe the case of a homeowners walking away from a mortgage even though they have the ability to pay. Now lenders and mortgage servicers are joining the ranks by walking away from foreclosures without completing the foreclosure process; a practice that often leaves the property in limbo.
According to a Woodstock Institute report, Thousands of vacant homes in the City of Chicago are likely poorly maintained, lack clear ownership, and threaten to destabilize neighborhoods. The Institute’s, Katie Bultrago writes, " The loan servicer, who is the typical steward of a property throughout the foreclosure process, may choose to reduce the costs associated with a long-term vacant home by walking away from the foreclosure process instead of completing it or may avoid maintaining a vacant home up to local code standards. In both cases, the vacant home is subject to limited or no oversight and poses a substantial risk to the surrounding community, such as lowering property values, attracting criminal activity, and causing blight."
The report includes several policy recommendations to reduce the negative impacts of troubled vacant homes on communities, including:
Keep homes occupied—Loan servicers should proactively pursue solutions, such as sustainable loan modifications, that allow homeowners to stay in their homes whenever possible.
Hold servicers accountable—State and federal regulators should ensure that loan servicers are implementing strategies to limit the damage that vacant properties have on communities.
Increase ability to enforce existing vacant property rules—Local governments should be given more authority to ensure that mortgage servicers maintain vacant properties up to required standards.
Improve data sharing to increase information on vacant buildings—Better coordination of data among different levels of government would allow for more efficient enforcement of vacant property registration and maintenance requirements and early identification of compliance issues.
Read More >>>> Woodstock Institute
And then there are strategic bankruptcies…
In Richmond, VA, this week, the owner of the profitable Dominion Country Club, located in his own developed community, declared bankruptcy. The reason? He did not want to re-pay, as promised, millions of dollars in membership deposits. According to some of his members, he has diverted most of the profits from the club’s operations to other communities in his portfolio. After the hoped for restructuring of his "debt," the owner plans to lease the club back to its members.
Quiet Title
Allow for the homeowner to Quiet Title if lender brings a foreclosure and then does not complete the process within 1 year.
That would scare the lenders to either finish the foreclosure and take over responsibility for caring for the property.
Or it forces them to make reasonable and timely mortgage modifications.