Ohio Lawmaker Seeks To Strip Lenders Of Right To Foreclose On Abandoned Homes Forced Into Legal Limbo

In Dayton, Ohio, the Dayton Daily News reports on the havoc being created by lenders and their loan servicers who, after initiating foreclosure actions, abandon the lawsuits after finding out the homes are abandoned and the cost of making repairs, paying delinquent real estate taxes, and paying off fines for code violations exceeds the property value. An Ohio state lawmaker has offered a solution to this problem of abandoned homes being left in legal limbo(1) by these financial institutions:

• State Rep. Dennis Murray, D-Sandusky [is] preparing a bill that would give lenders a set amount of time — say, 60 days — after filing a foreclosure on an abandoned property to do something with it or be stripped of their legal interest in it. Other provisions of the bill give judges more leeway in dealing with foreclosure cases. [...] He said he’s optimistic he can get the bill passed.

For the story, see Owners of abandoned properties are hard to track down.

In related stories from the Dayton Daily News, see:

• A new crisis: Lenders abandon properties (Owner, neighbors, city left to deal with a home that no one has any incentive to improve),
• Advice to homeowners in trouble: Stay in the house! (That’s the message from housing advocates and elected officials who deal with foreclosure issues),
• Drop in foreclosures called ‘very scary’ (Lenders’ actions show they think properties are not worth pursuing).

Go here for other posts on homes being left in legal limbo (when a lender intentionally delays completion of a foreclosure to avoid taking title to the repossessed collateral, or fails to record its deed after foreclosure sale).

(1) A March 3, 2009 National Public Radio story (see Banks Refusing To Take Back Foreclosed Properties) reported that Cleveland, Ohio Housing Court officials said they have seen homeowners take matters into their own hands when dealing with the abandonment of foreclosure lawsuits by lenders. One instance is cited involving a foreclosing lender that was reluctant to complete the foreclosure process and repossess a dilapidated property. In that case, the homeowner simply deeded back the property to the lender by preparing a deed, naming the lender as grantee, and recording it.

Such a conveyance may ultimately be found to be ineffective because the mortgage lender surely would assert that it never "accepted" the deed conveyed by the owner of the dilapidated wreck collateralizing its loan (ie. to be effective, a deed must be both "delivered" by the grantor-owner, and "accepted" by the grantee-lender; in other words, no acceptance = no conveyance). However, recording a deed in the name of the unwitting lender may, under state law, create a legal presumption that it has been "accepted" by the lender (see, for example, Janian v. Barnes, 284 A.D.2d 717, 718; 727 N.Y.S.2d 182 (N.Y. App. Div. 3d Dep't 2001)) until such time that it straightens out the mess by going into court, presenting evidence to a judge that there was no actual acceptance, and obtaining a judgment declaring the deed to be void. Unless and until it does so, the lender could arguably be treated as the legal owner of (and find itself legally responsible for the code violations on) its abandoned dilapidated loan collateral. Inasmuch as many mortgage holders, their loan servicers, and their assembly line foreclosure mill attorneys have proven themselves to be quite clumsy when handling the paperwork relating to their mortgages, it could be quite some time before they discover that title to the loan collateral has been put in their name - probably when they start getting tagged with the code violations - and possibly even longer before they figure out what to do. Accordingly, recording the paperwork necessary to deed the title to a dilapidated home in foreclosure back to the bank may be seen by some as a practical, low cost way for a homeowner of an abandoned home to shift (albeit, maybe only temporarily) the liability for code violations (and possible jail time for failure to cure the violations) away from themselves and onto the lender. responsibility code violations foreclosure BetaVacantForeclosure