Dec 03

Four  years ago I wrote of a scary trend I saw emerging, Zombie Housing.  These are homes that lenders begin foreclosures on but never take title.  This leads to homes that cannot be sold due to the liens upon them.  While these houses sit vacant they are vandalized beyond repair.  Yet the owners, who think they are the former owners,  remain on the hook for city fines, taxes, demolitions and liability for injuries.

No one paid much attention to this.  However this past week  the Wisconsin Court of Appeals issued a recommended for publication decision in Bank of New York v. Carson to address foreclosed, abandoned properties and force their sale upon expiration of a five week redemption period.

¶16 In sum, because the trial court had the authority pursuant to WIS. STAT. § 846.102 to amend the judgment to find the property at 1422 West Concordia Avenue abandoned, and because the trial court had the authority to order a sale of the property upon the expiration of the statutorily designated redemption period, we conclude that the trial court erred as a matter of law in deciding that it did not have this authority

In the short term this ruling will put a lot of properties on the market, most of which have now been stripped of all value and will ultimately face the bulldozer.

A current question is “Are banks required under current law to take title if no one bids at auction?” If the answer is yes I will assume a lot of banks will do the reasonable thing from their perspective and not foreclose on mortgages if the property is abandoned and of little value. Instead they may sue for a money judgement on the note.  I’ve seen cases where banks have done this on near Northside rental properties. The banks can also simply do nothing and abandon their interest or issue satisfactions on nonperforming loans on abandoned properties and wash their hands of any legal responsibilities.

If the banks respond in this manner it will make the problem much worse and it is unlikely current legislation can hold the bank to the financial responsibilities of those properties if they do not foreclose.

Reuters had an interesting article on Zombie Housing that was referenced by the Court of Appeals.

So the foreclosure crisis is far from over in areas where property values are low and city regulation of lenders in possession are tough.

2 Responses to “Zombie housing revisited”

  1. […] proposed bond will cause more incentive for banks to do this, creating a larger amount of Zombie housing, i.e. housing that can never be sold due to the liens and title […]

  2. Thank you for your impressive and effective info!

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