For Forsythe Real Estate Appraisal July 2016
Real estate foreclosures have been on a downward trend in the U.S. after reaching record highs in the midst of the housing crisis. This is good news for lenders, who can hopefully begin to extend credit to more borrowers. It is also a good sign that consumers themselves are finding it easier to make their mortgage payments. However, in some areas of the country, delays along the foreclosure process are causing financial headaches for some former homeowners.
As reporter Tim Henderson wrote in Stateline, a blog funded by the Pew Charitable Trusts, effects of the recession are still being felt in the form of so-called “zombie homes.” As Henderson explained, the spooky nickname isn’t meant to be taken lightly.
Zombie homes are effectively in limbo between stages of foreclosure: The borrower, often anticipating a default on their mortgage, has moved out of the home long ago. The lender, however, has yet to take possession of the home’s title. This can happen due to complex regulations surrounding foreclosures, which explains why zombie homes tend to cluster in certain states. Henderson found that an estimated 40 percent of zombie properties are located in New York, New Jersey and Massachusetts. They are also on the rise in several other areas within Oklahoma, Michigan and Washington.
The prevalence of zombie homes has sparked controversy from legislators, the finance industry and homeowners because of the significant negative impact it can have on a borrower’s finances. As legal advice blog Nolo noted, the former owners of zombie homes often assume that the foreclosure process has finished, when in fact they still own the property in the eyes of the government. This can cause debt to rack up from property taxes, homeowner’s association fees, fines for code violations and other reasons, all without the debtor’s knowledge. When collections activity is finally initiated, these former owners may find they have little recourse.
When a home in stuck in limbo, it tends to influence the value of surrounding properties as well. But until ownership is officially transferred to the bank, zombie homes sit vacant. Henderson found that zombie homes often become the target of vandals, squatters and other criminals. The fact that these properties tend to lie in already financially struggling communities makes the issue all the more urgent.
With many cases of zombie homes stuck in a legal deadlock, lawmakers have been pressured into action. On June 23, New York Governor Andrew Cuomo signed a bill into law aimed at reducing the state’s glut of zombie homes. According to Cuomo’s office, the package of new laws will speed up the foreclosure process in the state, as well as help homeowners facing a mortgage default. The new law also requires lenders to agree to take on costs related to maintenance of homes in foreclosure limbo.
“For many New Yorkers, homes are our single most important investment, but that investment can be undermined by the blight of neglected and abandoned properties,” Cuomo said, according to the release. “For each zombie home that we cure and for each that we prevent with this legislation, we are saving entire neighborhoods from the corrosive effect of blight and neglect.”
While the law could add another layer of complexity for lenders, its ultimate aim, beyond reducing the danger and costs related to vacant homes, is to get them back onto the market. This should end up working in favor of everyone involved in the process, and lead to better outcomes for those looking to sell their homes in disenfranchised areas.