An article I wrote on Zombie homes a while back generated a lot of response. A lot of folks across this country were struggling with the same problem. They moved out of a home they no longer could afford and quit making the mortgage payment. Many of these folks had filed a bankruptcy case and assumed the bank would conduct a foreclosure sale of the home quickly.
Unfortunately, many banks delayed the foreclosure and the homeowner got stuck owning a home and the burdens that go along with ownership: cutting the grass, shoveling the sidewalks, complying with local building codes, and paying for home insurance. Vacant homes became vandalized. Since the homes were worth far less than what was owed on the mortgage loans, it became extremely difficult to sell the homes unless the banks would agree to a Short Sale.
Why to banks refuse to foreclose? Sometimes they have lost the mortgage documents and they cannot legally start the process. The home may be in terrible disrepair and they do not want to take ownership. Some banks are swamped with defaulted mortgage loans and they only handle so many foreclosures at a time.
There are some basic strategies to deal with Zombie homes:
- Move back into the home. Until the home is sold you own it with the right to occupy. Live in the home until a a foreclosure sale is actually scheduled.
- Rent the home. Again, you own the home and have the right to rent it.
- Sell the Home. Some real estate agents specialize in Short Sales. They are skilled with negotiating with the banks to accept less than what is owed on the mortgage.
- Quitclaim the home to the bank. This is a questionable strategy since there is some doubt about whether a person can “force” a home on the bank.
- Donate the home. You might not want to live in the home any longer, but maybe you can find someone who needs temporary housing and who is unconcerned about the eventual foreclosure. You can quitclaim the home to them and they can assume the burden of ownership.
- Sell to an investor. I have met real estate investors who will take ownership of a home subject to the mortgage loans. Why? Because they will rent the home until the foreclosure sale occurs.
A new strategy is to transfer ownership of the home to the bank through a Chapter 13 Plan. (A chapter 13 is a 3 to 5 year repayment plan where a person pays back some of their debt based on their income and other factors.)
In the New York bankruptcy court, Raymond and Christine Zair’s Chapter 13 Plan provided for the surrender of their home “in full satisfaction of the secured portion of the first mortgage owed,” and that title to the property would be vested in the bank. The Plan stated that “the confirmation order shall constitute a deed of conveyance of the property when recorded with the county clerk’s land records.” The bank objected to the plan but the court approved it. The case is now on appeal.
Can you file a chapter 13 plan in Nebraska to force the bank to take back the home? There is no case deciding this issue in Nebraska yet, but it may be a valid option worth trying. This option is only available in Chapter 13 cases.
Image courtesy of Flickr and Mike Eaves.
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