Owning a home can be a burden, especially for those who wish to surrender a property the bank does not want. Frequently the homeowner has vacated the premises and the property sits unoccupied for months or even years. These “Zombie” homes impose significant burdens for debtors, even after a bankruptcy is completed and the underlying mortgage debt is discharged. Regardless of whether the mortgage debt is discharged, the debtor owning a vacant home faces the following problems:
- Insuring the Property: As long as the home is in your name, you may be held liable for those who become injured on the property. If there is a dangerous condition on the property or if snow covered sidewalks are not shoveled, you may be held responsible for the injuries suffered by others, and for this reason I advise my clients to maintain insurance coverage even if they move out of the home. In addition, the insurance company must know the home is vacant since their policy may be conditional on the owner occupying the home.
- Maintaining the Property: Most local housing codes require the homeowner to cut the grass, shovel the sidewalks, and maintain the property. Civil and criminal citations may be issued for failure to keep the property maintained.
- Homeowner Association Dues: Although filing bankruptcy may discharge the homeowner association dues that exist when the case is filed, future homeowner dues are not affected by the bankruptcy filing and debtors commonly get hit with paying these ongoing fees.
- Vandalism: A frequent complaint of the owners of abandoned homes is that thieves steal the copper piping, plumbing and electrical fixtures, and HVAC components.
Why do mortgage lenders delay the foreclosure? There are several reasons for the delay.
- Too Many Loans. Banks can process only so many foreclosures at one time. If they foreclosed all their bad loans at once they would inherit the burden of insuring the homes, shoveling the sidewalks, cutting the grass, etc.
- Title Defects. It has been well documented that many banks struggle to produce all the required loan assignment documents necessary to begin the foreclosure process, and many banks have been found guilty of manufacturing phony loan documents just prior to initiating the foreclosure. In short, the bank may not foreclosure because it does not have the required loan documents.
- Damaged Properties. Banks do not want to take ownership of damaged properties. If the home is viewed to be a liability, especially if it is located in a blighted neighborhood and substantial repairs are necessary to bring the property up to minimal building code standards, the bank may opt not to foreclose.
What should a homeowner do with a Zombie home?
- Live in the home rent free. I frequently advise debtors not to vacate the home until the bank has scheduled the foreclosure sale. In Nebraska the bank must advertise the sale in a newspaper for five consecutive weeks, and that should allow enough time to move to another home. I also advise that a person save the money they would have paid to the mortgage company in a separate account so they have enough funds on hand to hire a moving company and pay the rent deposit on the next home.
- Rent the Home. If you must move to another location, consider hiring a real estate management company to rent the home. Renting a home is a burden, and it is advisable to find a company that can collect the rent, evict nonpaying tenants, cut the grass, etc. As long as you can rent the home and pocket the cash, who cares if the bank ever forecloses?
- Sell the Home: The basic problem facing homeowners is that they cannot sell the home for what they owe the bank. However, individuals in bankruptcy have a special power to sell a home free and clear of the mortgage liens. The sales proceeds are then deposited with the court. So, if the bank will not take the home back with a Deed in Lieu of Foreclosure and if you cannot negotiate a Short Sale of the home, consider filing a request with the bankruptcy court to force the bank to accept the sale.
- Quitclaim the Home to the Bank: This option is somewhat questionable since many experts in real estate law say that forcing a deed on the bank is an “incomplete transfer.”
- Donate the Home: You may not want to live in a home that will be sold at some uncertain time in the future, but other people may not have a problem with this reality. Maybe you can find a homeless shelter or a friend who would love to own your home even if for a short period of time.