So what is a Zombie home? Have you seen homes sitting empty and abandoned for months or years? You have probably seen a Zombie home. The owner made a very difficult decision to abandon the home. The mortgages on the property far exceed its fair market value; meaning there is no equity in the home. In many situations the owner cannot afford to keep the mortgages current or maintain the property to keep it in good condition. The owner may abandon the home and move to another property or to live in the property until the lender forecloses. Even if the lender will agree to take less than the debt it is still impossible to sell the property because of the condition. End result – Zombie home.
Even though the owner abandons the home this does not relieve them of personal liability. The owner may have personal liability to someone who is injured on their property. The owner can be cited by the local municipality for failure to maintain the property. If there is a homeowner’s association the owner is most likely personally liable for homeowner’s dues and assessments.
Lenders may not start a timely foreclosure for many reasons. They may have too many properties in foreclosure in that area and are reluctant to put another property into foreclosure. The lender may be concerned about taking on the ownership responsibility of an abandoned home in poor condition. Detroit and other cities are faced with entire neighborhoods that are abandoned. These properties become areas of increased crime which add to the burden of the city’s public resources.
Recently there has been a move to use the bankruptcy process to take a run at this problem. A few creative bankruptcy attorneys are using the chapter 13 process to transfer ownership of the property to the secured lender with the confirmation of the chapter 13 plan. See In Re Stewart, 2015 Bankr. LEXIS 2948; 536 B.R. 273. Minnesota); In Re Zair, 235 B.R. 15 (E.D. N.Y. 2015), In re Rosa, 495 B.R. 522.)
This is a creative idea, but as of this writing has not been dealt with at the 9th Circuit. These cases profile courts’ frustration with lender’s failure to take reasonable and timely action to either foreclose on the property or forgive the secured debts.
Excerpts from Nebraska Debt and Bankruptcy Blog, By Sam Turco on October 6, 2015 Posted in Chapter 13 Foreclosure
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