Banks exit foreclosure proceedings
Strategic defaults by underwater mortgage holders have been a big issue during the foreclosure crisis. Are banks guilty of similar practices on the flip side?
CNBC reports that, "Thousands of empty, foreclosed properties dot streets. A growing number of these homes, however, are not actually foreclosures. The borrowers still own them, whether they know it or not."
The reality is that for many banks, going through with an actual foreclosure will cost them more than essentially giving the property away, which is about to happen. Under a settlement signed last February, the nation's five largest mortgage servicers agreed that if a bank chooses not to pursue a foreclosure, it then must notify the borrower of the decision to release the lien and notes that the borrower has the right to the property.
"In other words, the bank eats the mortgage, and the borrower owns the home free and clear. These rules started last October."
This is quite a deal for some people, who have been essentially squatting in their own homes hoping for something like this. This may not clean up blighted neighborhoods overnight, however. I'm betting that there will be lots of cases in which the home remains vacant because the servicer has no idea how to contact the mortgage holders to tell them the good news: they still own the house. What might happen is that the bank and borrower will both disavow the home, leaving it to languish.
- here's the article