“There’s no end to this,” Mr. Sheafe says. “I can’t win.”
Asked to comment, Ocwen issued a statement saying: “It is Ocwen’s policy not to disclose details about specific customers. In this case, Ocwen has attempted to work with the borrower over a four-year period. Ocwen offered to settle the account with the borrower but never received a response to the offer.”
Mr. Sheafe says he couldn’t afford the amount Ocwen proposed in its settlement offer.
The Consumer Financial Protection Bureau, the federal agency established in the wake of the financial crisis to guard against predatory lending and other abuses, declined to comment for this article.
Joe Smith is the monitor of the National Mortgage Settlement, the agreement struck a year ago between major banks and state attorneys general to, in part, address foreclosure abuses. In a statement responding to a request for comment, he said: “To my knowledge, the servicers’ behavior in the situation … is not covered by any standards in the Settlement.” He added: “However, it does sound like there are problems with this type of treatment. I recommend the borrowers contact their state’s attorney general and remember that the Settlement does not preclude borrowers from taking their own legal action.”
Patrick Madigan, Iowa’s assistant attorney general, was instrumental in crafting the National Mortgage Settlement. He said that he thought the consent decree would attempt to address the issue of foreclosure limbo, but that in the end, the language in the order was ambiguous. “It’s a very difficult situation,” Mr. Madigan said.
Banks say that because they are not the legal owners of these homes, they aren’t required to maintain them, pay taxes on them, or take any legal responsibility for them. Homeowners legally own their properties until the day of sale. And it’s not until that day, the banks point out, that a homeowner’s name vanishes from the title.
David Volker found that out the hard way. When the housing market crashed, so did Mr. Volker’s contractor business, and he was unable to keep up with payments on his barn-like two-story house in Buffalo, N.Y. His mortgage servicer, HSBC, foreclosed on the home in 2009. A few months later, while he was staying with his girlfriend, he stopped by the house to find an HSBC padlock on the doorknob and bank stickers plastered across the door.
Shattered glass covered his front steps. When he crawled through a broken window, he found the place trashed – by whom, he doesn’t know. Even the toilets were gone. Hearing nothing more from the bank, he figured the house was no longer his.
The place continued to decay. Gutters tore loose from the eaves. The yard turned into a dump for balding tires. Mr. Volker’s neighbours started complaining to the Buffalo Housing Court, which eventually tracked down Mr. Volker at the rental where the 49-year-old was living and ordered him to appear in court. That’s when Judge Carney told him that he was still the owner.
“I was stunned,” Mr. Volker says. “I never for a moment thought I still owned this house.”
Mr. Volker worked with a realtor to try to get HSBC to take several short-sale offers – deals under which the bank would allow Mr. Volker to sell the house for less than the amount owed on it – but he says HSBC turned them down. Since then, he’s been asking the bank to agree to a deed in lieu, whereby he would give the house back to the bank. So far, he hasn’t been able to make that happen. He has $1,000 in water and trash bills and faces up to $30,000 in demolition fees if the city decides his house is a safety hazard and must be torn down.
HSBC declined to comment on Mr. Volker’s case, citing privacy concerns. In a statement, the bank said it “has a strong commitment to home preservation and regards foreclosure as a last resort, only after alternatives have been exhausted and the borrower is seriously delinquent.”
Cases against zombie-title holders are rising due to everything from sewer bills to tilting chimneys, and they are clogging the courts. In Milwaukee, Wisc., about 900 cases in the foreclosure process involve zombie titles. In South Bend, Ind., the number is 1,275, up from 600 in 2006. In Memphis, Tenn., cases have doubled in the past two years to 1,500.
In Cleveland, 15 per cent of foreclosures between 2005 and 2009 stalled out in foreclosure limbo, more than a third of them involving homeowners who had fled foreclosure notices, according to the Case Western Reserve study.