Marc Guzman's West County Blog

*Picture by NYTimes.com

Ok we are now going into our 6^th year of this giant foreclosure mess.  By now everyone understands the process of a bank foreclosure.  Even if you are not actively seeking daily foreclosure news, you’ve heard your fair share in mainstream media.  So we all get what happens when you don’t make your mortgage payment, whether due to financial hardship or by personal choice.  So what happens when the Bank that holds your mortgage decides to walk away?

Yes I am asking this question because it is happening across our country.  It is not a common practice but in some communities where prices have been hit extremely hard, “bank-walkaways” happen.  Think about it… a homeowner decides it is not worth staying in a property and decides to walk away.  The bank holding the mortgage initiates the foreclosure process and in the process discovers that the costs to foreclose, rehab and sell the property exceed the property value.  The bank then decides to walk away since it would be less expensive; they would stop the foreclosure and release the mortgage lien off the property title.

Sounds good for the homeowner right?

Wrong.  The reason why the homeowner wouldn’t really benefit in this case is because most of the “bank-walkaways” are happening on already abandoned properties that cause neighborhood blight and are too costly to rehabilitate into livable condition. 

So who takes over the property?

Well the property just sits there vacant month-after-month, year-after-year until… guess who… the taxpayers come to the rescue.  It’s actually the City the property is located in but ultimately with taxpayer dollars is the property rehabilitated or demolished.  This is happening more and more across the country to the point that Congress is beginning to get involved.  Senator Sherrod Brown (D-Ohio) is actively engaging with the OCC – Office of the Comptroller of the Currency, the regulator of the financial institutions – encouraging them to require banks to foreclose on abandoned property and either rehabilitate the properties or demolish them.

So should banks be forced to foreclose on abandoned properties? 
Or should they be allowed to release mortgage debt when they choose to and walk away?