The Coming Curse of the “Zombie Foreclosures”
If you think you’ve heard the last about foreclosures, think again.
There are a ton of them in the pipeline. Approximately 740,000 homes are currently somewhere in the foreclosure process.
In addition, banks own another 676,000 homes they’ve retained and not yet listed for sale, according to RealtyTrac.
And here’s the scary part…
More than 22% of those 676,000 homes (about 152,000 of them) are either vacant or abandoned, and neither banks nor servicers have taken title.
So why is this so worrisome? Let me show you…
You see, these abandoned or vacant homes are called “zombie foreclosures.”
These are homes where banks began foreclosure proceedings after homeowners were notified umpteen times that they were being foreclosed on. Hundreds of thousands of those homeowners walked away from their homes, leaving them for the banks to reclaim.
The problem, according to the Consumer Financial Protection Bureau (CFPB), is that homeowners don’t know they are still legally bound to their sinkhole homes.
In other words, homeowners who thought they were no longer homeowners are finding out they are still on the hook for mortgage payments, taxes, and all kinds of maintenance.
But banks — who don’t want to fully write-off homes and take the financial hit to their capital — aren’t completing the foreclosures. They refuse to take title to untold thousands of these zombie foreclosures.
To make things worse, the big banks (you know who they are, the ones that ponied up over $25 billion in the national mortgage settlement deal) got credit for billions of these same homes that they now say homeowners are really responsible for.
There will be lawsuits.
For one thing, truth-in-lending laws might be a safe haven for homeowners. These folks can say they were never notified that banks and servicers never fully foreclosed, so how could they be liable for homes they were told, sometimes by hundreds of letters, were being foreclosed on?
And how about that pipeline of 740,000 homes still in the foreclosure process? How’s that going to play out in the housing market when banks add them to the 676,000 homes they already own and aren’t listing for sale?
Color me worried.
I was on Varney Co. on Tuesday, and host Stuart Varney asked me what I thought about housing. I said the lows have about ruined its course and we’re betting on a drop in housing.
This latest news from the CFPB is further proof that the sinkhole under housing hasn’t been filled in with concrete, but rather with quicksand that may not have time to harden before the foundation of the market rally wavers uncontrollably.Courtesy: Shah
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