Amidst the Walking Dead: Judicial and Nonjudicial Approaches for Eradicating Zombie Mortgages
45 Pages Posted: 29 Mar 2015 Last revised: 5 Apr 2016
Date Written: 2016
The collapse of the residential housing market in 2007 brought with it a wave of foreclosures. Subprime borrowers, who were once elated by loans they secured from lenders, suddenly found themselves strangled by the predatory terms of their newfound loans and ultimately became unable to pay their outstanding loan balance. Amidst a growing number of residential foreclosures, lenders discovered the financial downside of foreclosing on residential properties — though this realization often surfaced after the foreclosure proceeding had commenced — and began to delay, or halt, foreclosure sales altogether. These purposeful maneuvers by lenders resulted in borrowers’ continued legal liability for a residential property, a property which borrowers believed they had lost as a result of the lender’s foreclosure; in other words, a “zombie mortgage.”
This Comment analyzes the different circumstances under which lenders can foster the creation of zombie mortgages. Particularly, this Comment focuses on stalled and incomplete residential foreclosure sales and failures to execute deeds of sale, tactics which serve to maintain legal liability of the mortgaged property on a borrower. Notwithstanding a lender’s right to foreclose on residential property to satisfy the obligations that it is owed under a promissory note, this Comment argues that strategic delays in completing a foreclosure sale entitle state courts and legislatures to either (1) force a lender to complete a sale or (2) divest a lender from both its right to foreclose and its security interest. Though some other solutions for zombie mortgages have been proposed, this Comment urges courts and legislatures to look outside criminal sanctions and nuisance abatement actions when developing strategies to eradicate zombie mortgages. Through judicial and legislative intervention, lenders would be incentivized to complete the foreclosure proceeding, or risk losing their security interests in the mortgaged property.
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