How to Kill a Zombie: Strategies for Dealing with the Aftermath of the Foreclosure Crisis

Abstract

The foreclosure crisis which began in 2008 is old news; or is it? A lot of attention has been paid to the plight of homeowners struggling to save their homes from foreclosure. Legislative and regulatory changes have made it easier for homeowners to navigate the loss mitigation process. A significant number of people, however, did not try to save their homes. In fact, some actively tried unsuccessfully to give the homes back to their lender. These abandoned homes and abandoned foreclosures have become zombie mortgages. This is the legacy of this crisis.

The existence of these homes is well documented and this paper does not seek to prove the problem. Instead, it analyzes some solutions. How can homeowners re-gain control of these homes in order to solve the urban plight problem the foreclosure crisis left in its wake? Current law does not anticipate a bank not seeking foreclosure. Should it?

Courts are just beginning to grapple with the situation. No consistent patterns have emerged to deal with the issues. The mortgage industry has argued throughout this crisis that delays in judicial foreclosure are one of the causes of this phenomena. The data has failed to support this hypothesis. On the contrary, this paper argues that the industry used every legal maneuver possible to exacerbate the problem. Lenders have been allowed to enjoy the benefits of the mortgage, while avoiding the burdens. Changes in policy and perception are needed if we are ever to move pass the crisis.

Keywords: foreclosure; property; mortgage

JEL Classification: K11, K39, K41, K42