Monday, December 2, 2013

Fox on Abandoned Foreclosures and the Coming "Foreclosure Echo"

FoxJudith Fox (Notre Dame) has published Foreclosure Echo: How Abandoned Foreclosures are Re-Entering the Market Through Debt Buyers on SSRN.  Here's the abstract:

It is common knowledge that mortgage defaults increased steadily from 2006 through 2011. In some situations, lenders moved swiftly after default to foreclose the property; but for other homeowners the foreclosure process began and then stalled or was completely abandoned by the lender. The result of these abandoned foreclosures has been devastating to cities and consumers throughout the country. This article explores what is happening to homeowners caught up in the strange world of bank walkaways as the economy is beginning to improve. This second wave of collection activity, an echo of the original foreclosure crisis, could easily throw thousands of consumers back into financial hardship just as the economic recovery begins.

Part I of this article explores the evidence of foreclosures started and then stalled or abandoned and their impact on consumers and communities. In Part II "the real zombie title" is introduced through evidence gathered in foreclosures in Indiana. This new form of "zombie loan" is a mortgage loan that has been foreclosed, but is suddenly and inexplicably "un-foreclosed." The effect of zombie loans on homeowner, judicial system and communities is also explored. Finally, Part III discusses the increased presence of debt buyers in both the buying of loans and the collection of deficiency judgment in relation to the overall concern currently being voiced regarding the debt buying industry. The clever ways banks are managing their foreclosure inventory make clear that the effects of zombie loans must be mitigated in order to avoid a second economic downturn, the "foreclosure echo."

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