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Shaky alliances form to fight zombie foreclosures


Many advocates caution that RealtyTrac data underestimates the number of zombie foreclosures, which are hard to count.

Nearly a decade after the subprime crisis, many neighborhoods are still plagued by undead leftovers from the crash. “Zombie foreclosures” are those that have been begun — but not finished — by lenders. As homes sit empty, they invite vandalism, drag down property values, and erode municipal tax bases.

Now, in an attempt to exterminate zombies, some unlikely alliances are being formed by groups that traditionally work against each other. One of the most coordinated efforts has become known as “fast track,” so called because it would shorten the amount of time a court-enforced foreclosure process takes.

Fast-track efforts have drawn a diverse group of supporters to an effort that seems like it should be a win-win for municipalities, mortgage bankers and other lenders, and even homeowners. But the alliances between different groups who don’t normally share the same goals or views have been uneasy and the progress murky, and some players say they’ve yielded as many setbacks as steps forward.

Gregg Hagopian, an assistant city attorney in Milwaukee, watched a zombie foreclosure settle in next door to him. His neighbors had trouble paying the mortgage, and the bank foreclosed.

Hagopian, a 54-year-old lifelong Milwaukee resident who’s made zombies and blight a personal crusade, sees a cruel irony in the way foreclosures play out.

Gregg Hagopian

When homeowners who’ve fallen behind on their mortgage payments learn that a foreclosure has been started, most assume they’ve lost the home. At that point, many walk away from the property, as his neighbors did.

But that’s just the initial step in what can be a multi-year process, especially in “judicial” foreclosures. Twenty-six states and the District of Columbia require that foreclosures must go through a court-enforced process. Many consumer advocates believe a court process offers more protection to borrowers, but in reality very few borrowers mount any kind of defense against foreclosure action.

Even when a court finds in favor of the lender and orders that a foreclosure be finalized, it doesn’t end there. Foreclosure is not final until the lender has received a judgment from the court and then sold the property in what’s usually known as a sheriff’s sale.

Until that time, the homeowner is responsible for keeping up the home and paying taxes, but many have no idea that’s the case. And most lenders drag their feet rather than take on those costs, plus the expense of paying to renovate a home that’s been abandoned for months, then have to sell a property into a depressed real estate market.

So homes sit empty. As Hagopian said, “The gutters were hanging off the house, the shingles were peeling up, the lawn got to be past my knees. I went out and mowed the lawn because I just couldn’t bear to watch it any more. Good luck finding anyone to address the problem: the owners didn’t have any money. The lender wouldn’t deal with it because they didn’t own it yet. The house was stuck in limbo.”

Fast-track efforts attempt to limit the amount of time a lender has from the time the foreclosure judgment is made until the sheriff’s sale can be completed.

Consumer advocate groups like the Center for Community Progress, a national organization that tries to combat what it calls “problem properties” support that idea.

But Dekonti Mends-Cole, the organization’s policy director, told MarketWatch that too often legislative efforts go in a different direction when groups like hers try to partner with lenders and bankers. In some states, the legislation has been repurposed to cover occupied, not vacant, properties, she said.

“In my opinion the partnership has broken down. It’s less about serving the community and more about serving the servicer,” Mends-Cole said.

In Ohio, legislation allowed lenders to proceed with foreclosure even when they can’t prove they own the note — a step backward in terms of establishing that all mortgage paperwork has been completed thoroughly and accurately, said Julia Gordon, executive vice president of the National Community Stabilization Trust.

“The bills have turned into Christmas trees” for lenders and servicers, Gordon said.

In Wisconsin, earlier legislation that shortened the “redemption period,” the period of time between the foreclosure decision and the sheriff’s sale, was neutered by a new bill that tacked on an additional twelve-month period in which a lender can do nothing, and after which it has no obligation to take possession of the foreclosed property.

Advocates like Center for Community Progress and the National Community Stabilization Trust partnered with Hagopian and others in Wisconsin to fight the bill, which passed the legislature, and then lobbied the governor to veto it. But it became law in April.

“Wisconsin sticks out like a sore thumb from a national trend,” Hagopian said.

The extra time provision was lobbied for by the Wisconsin Mortgage Bankers Association. The group responded to requests for comment with a statement:

“The intent of the bill is to bring a property through a foreclosure action and redemption process as expeditiously as possible. Financial institutions derive no benefit nor does the community having a property sit for prolonged periods of time.”

As fast track efforts wend on, other interested parties have joined in.

Robert Klein founded Ohio-based Safeguard Industries in 1990 to provide what he calls “boots on the ground” services for far-away servicers of delinquent mortgages: ensuring local codes are enforced, maintaining the property, and so on. Klein was an enthusiastic supporter of legislation in Ohio because, as he says, “a vacant property is not a bottle of wine. It does not get better with age.”

Servicers would have less need for Safeguard’s services if vacancy periods were shortened, but Klein said that’s okay since fast track efforts are “the right thing to do.”

Even as Klein advocates changes to the judicial process, he’s also is also lobbying for more widespread use of a product he manufactures, polycarbonate coverings for windows and doors on abandoned homes. Plywood boards, the normal means of securing empty homes, “invite vandalism,” he said. “It’s an absolute crime in my opinion to advertise to the world, I’m vacant, come and vandalize me.”

The Mortgage Bankers Association is a Washington-based lobby group unaffiliated with the local group in Wisconsin. The national MBA has developed a series of “best practices” meant to “responsibly expedite the foreclosure process for vacant and abandoned properties.”

The MBA “gets it,” Mends-Cole told MarketWatch. Still, the Center for Community Progress is working on similar efforts, either to create guidance documents or draft legislation for local groups. There’s some disagreement within the advocacy world about whether to tailor efforts to individual state situations, which may be more “responsive,” she said, but it’s also more reactive than proactive.

In Milwaukee, where there are currently about 300 zombie foreclosures, Hagopian hasn’t given up hope.

“It takes so much time and patience to get it done that most people give up, but we owe it to our neighborhoods and our fellow citizens to make it better,” he said.

Article source: http://www.marketwatch.com/story/shaky-alliances-form-to-fight-zombie-foreclosures-2016-06-30

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