Threat of jail
Unsuspecting homeowners have had their wages garnished, their credit destroyed and their tax refunds seized. They’ve opened their mail to find bills for back taxes, graffiti-scrubbing services, demolition crews, trash removal, gutter repair, exterior cleaning and lawn clipping. At their front doors they’ve encountered bailiffs brandishing summonses to appear in court.
In some cities, people with zombie titles can be sentenced to probation – with the threat of jail if they don’t bring their houses into compliance.
“These people have become like indentured serfs, with all of the responsibilities for the properties but none of the rights,” says retired Cleveland-Marshall College of Law professor Kermit Lind.
Banks used to almost always follow through with foreclosures, either repossessing a house outright – known in industry parlance as REO, for real estate owned – or putting it up for auction at a sheriff’s sale. The bank sent a letter notifying the homeowner of an impending foreclosure sale, the homeowner moved out, the house was sold, and the bank applied the proceeds toward the unpaid portion of the original mortgage.
That has changed since the housing crash. Financial institutions have realized that following through on sales of decaying houses in markets swamped with foreclosures may not yield anything close to what is owed on them.
By walking away, banks can at least reap the insurance, tax and accounting benefits from documenting the loss – without having to take on any of the costs and responsibilities of ownership, according to a 2010 Federal Reserve paper. A walk-away also enables them to “sell the unpaid debt to debt collectors, sometimes noting to the court that the loan has been charged off,” according to a Case Western Reserve University study released in 2011.
No regulations require that banks let homeowners know when they change their minds about a foreclosure. So they rarely do, according to housing court judges, homeowners’ lawyers and academics who study foreclosure problems. “The banks do not answer inquiries, they do not answer phone calls, they do not answer letters,” says Judge Patrick Carney of the Buffalo, N.Y., Housing Court. His zombie-title caseload has swollen in the past few years to well into the hundreds. “The whole situation is surreal,” he says.
Clean up or else
Marlon Sheafe, a 55-year-old who drove trucks for Sara Lee Corp. for 25 years, was sentenced to probation in May. The citation from the Cleveland Housing Court says that if he doesn’t fix the problems with the investment property he bought in 2005, the grandfather of three, who suffers from advanced cancer, will go to jail in May 2014.
Ocwen Financial Corp., the servicer of Mr. Sheafe’s mortgage, foreclosed on the house in 2008, when Mr. Sheafe was hospitalized with congestive heart failure and later lost his job, forcing him into default. That was the last he heard about the house until a year and a half ago, when he received a summons to appear in Cleveland Housing Court for code infractions on the property: cracked steps, shredded siding, weeds as tall as the doors. There was also a $300 lawn-mowing bill.
A few weeks later, Mr. Sheafe appeared at the drab, brown-paneled chambers of the Cleveland Housing Court, packed, as it is every Tuesday and Thursday lately, with other people in his situation. Mr. Sheafe expected his appearance that day would clear up what he thought was a big mistake. Instead he left with the order to get the house up to code.
Mr. Sheafe started visiting the tall, crooked house every week. Looters had stripped the place bare. The “dope boys” had left their sneakers on the porch and their empty cans of sausages strewn around inside. Mr. Sheafe repaired the steps and spray-painted patches of the exterior where the vinyl siding had been ripped off. He returned every week to check on the house and mow the lawn.
While Mr. Sheafe worked on the house, Judge Pianka worked on the mortgage servicer, subpoenaing Ocwen to appear in court. In February, Ocwen released its lien on the house, which Mr. Sheafe hoped would enable him to donate it to the local land bank – one of many set up by local governments in recent years to manage abandoned properties.
But Mr. Sheafe still can’t shake free of the house. The county sold his tax lien to a debt collector, which is now suing Mr. Sheafe for foreclosure. He also faces $4,185 for code violations, $185 for court costs and up to $10,000 if the city is forced to tear down the house.
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