January 17, 2011 (Chris Moore)
Recent news reports have showcased the increasing occurrences of homeowners who “walk away” from their homes. Also know as “strategic defaults,” most of these homeowners are not behind on their payments or are financially distressed, but instead walk away from their homes because they owe far more on their home than what it’s worth. But what happens when a bank “walks away” from a home that has been foreclosed on? According to a recent report from the Woodstock Institute, it threatens the stability of whole neighborhoods.
The recently released study, which primarily focused on the Chicago area, reports that mortgage services may choose to reduce the costs associated with a long term vacant home by walking away from the foreclosure process instead of completing it.
Ultimately the cost of dealing with the vacant properties, from securing them to demolishing them falls on the city, which will cost the city of Chicago an estimated $36 million.
And as many areas of the country have seen, abandoned foreclosures lowers property values, can attract criminal activity, and can cause blight as the homes are usually not maintained.
Woodstock said it found 1,896 “red flag” homes in the city, according to the report. It defines a red flag home as a property on the vacant buildings index where a foreclosure has been filed between 2006 and the first half of 2010 with no clear outcome such as a completed foreclosure auction or property transfer.
“Over 40% of these red flag homes have been in the foreclosure process for more than a year and a half, which means their loan servicers have likely decided not to complete foreclosure,” Woodstock said.
And with the average foreclosure now taking anywhere from 449 days according to Freddie Mac to 560 days according to Bank of America, things may get worse before they get better.
The report claims that so far banks have not been forthcoming about what they plan to do with vacant foreclosures. Data analyzed by the Institute shows that there may be an additional 2,558 REO properties that are vacant but are not registered as “red flagged” by the city.
The study recommends keeping homes occupied by pursuing loan modifications where applicable and said state and federal regulators should hold servicers accountable to implement strategies to limit the damage that vacant homes cause on neighborhoods.
Tags: mortgage servicers, walk aways, vacant properties, property values, reo properties, loan modification