Banks Not Inclined to Just “Walk Away”

We’ve all heard the stories about people living in their homes rent- and mortgage-free for years while the bank simply ignores the situation because it is too expensive to mess with the foreclosure process and the cost of reselling the home. However, in “real life” that hardly ever happens. According to a recent study of “bank walkaways” by the Government Accountability Office (GAO), less than one percent of vacant homes are actually foreclosures that have been abandoned by the bank. The study was initiated because of concerns that these “walkaways” were contributing to intensified “deteriorating market conditions” and complicating stabilization efforts. This is one instance, though, where the lenders are not falling down on the job.

While the GAO does emphasize that “the areas in which they [abandoned foreclosures] were concentrated are significantly affected,” most areas of the country are not having to deal with the problem. Not surprisingly, the majority of these walkaways are concentrated in hardest-hit areas in Ohio, Michigan and Indiana. Perhaps a bigger problem even than the fact that these properties can “become vacant, dangerous and corrosive eyesores that depress values of nearby homes” is that often the owners of these homes are entirely unaware that they are still listed as the owners. If the bank fails to foreclose, the original owners – long gone in most cases when they learned of the pending foreclosure – can still be “on the hook” for taxes and code violations.

Not surprisingly, these walkaways have also been tied into the Foreclosure-Gate debacle. GAO found that loan servicers for these properties often did not get updated information on the properties before starting the foreclosure process. As a result, they did not make the “best decisions” when it came to determining whether to launch the process or stall it, and the homes now sit vacant – at least officially. The GAO recommends that borrowers and local government offices be notified should a lender decide to charge off a loan instead of pursuing a foreclosure. “This is yet another area of the mortgage-servicing industry where a few common-sense reforms could potentially help thousands [stay in their homes],” explained Ohio senator Sherrod Brown in comments on the report.