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Banker’s perspective on zombie foreclosures ignores bank’s fault

April 24, 2013

San Francisco Chronicle posts “A Banker’s Perspective: 3 Ways to Tell if You Have a Zombie Mortgage” via PRWeb – “Scott Schang from Broadview Mortgage, a California based mortgage bank”.

This article “reviews three ways that homeowners who have let a home go into foreclosure can tell if it will ‘come back to life’ because it was never recorded.”:

The recent trend that has been developing are what have come to be known as “zombie mortgages” … many of the current problems with zombie mortgages have started to surface in the 2nd Quarter of 2013.

Here at ZombieLaw we have seen increasing zombie foreclosure rhetoric while less zombies in other economics. According to Schang:

“Unfortunately, these zombie foreclosures have gone from a few instances before 2007, to now being a full on zombie invasion after the housing collapse.”

zombie schang foreclosure

He advises:

“If your title shows that the bank still hasn’t foreclosed, call the bank immediately and try to work something out,”

Schang admits from the beginning that his is the perspective of a banker. These are the banks that crashed the markets and were bailed out by public money and then refuse to negotiate, can’t refinance because mortgage principal is above the value of the home, can’t foreclosure because the courts are crowded, and issues with collateralized debt paperwork, robo-signing (can robots be guilty of a crime?), and really, nobody wants to pay homeowners fees to a community that never finished building the whole community.

These homeowners may be in zombie foreclosure but it’s because the banks are the zombies, taking public money, racking in record profits and refusing to cut deals with the actual homeowners. This is particularly ridiculous because less than a decade ago the banks were happy to cut deals with these people they knew couldn’t afford it, and now even with Federal interest rates at the lowest they can be, and free money pouring into the banks, they now refuse to deal with homeowners and rather shift the burden of the housing market collapse to the individuals. The zombie foreclosure crisis is imaginary debts rising on banking sheets.

Schang tips his hand with a (Freudian-) typo in his last quote:

“Either way you go, the minute you find out you have a zombie mortgage is the same minute you call the bank. Time is off the essence and if that foreclosure process does go full scale, your options will grow more limited as time progresses,” says Schang.

In context, the expression he surely meant was “time is of the essence” a legal phrase of art that implies the importance of time as a material term in a contract. In the case of zombie foreclosures, delays only make it harder for the homeowner to negotiate as the unpaid debt accrues at old (now nearly usurious) interest rates. The banks don’t have any incentive to negotiate – many properties are still underwater and imaginary debts are better than actual community association expenses.

So Schang’s typo is correct, “time is off the essence”. The essence is now zombie; suspense and delay.

Note also in another post earlier this week, Schang wrote at FindMyWayHome: “Zombie Foreclosures Haunt Boomerang Buyers“:

I initially tried to avoid using the term “Zombie Foreclosures”. I have however, become more comfortable with the term due to the inability to come up with a more appropriate description.

In that article he also calls it “Faux-Closure” and I think that may be a far better term. Zombie foreclosure is really rather ambiguous and seems to me a stigma on those homeowners actually fighting the injustice of the 2007-2008 collapse.

The problem Schang and others have described as zombie titles is a real problem and definitely there are people out there who didn’t know they still had homes in their name. But I expect there are more people who did know and are struggling to hang on to lost dreams from 2006. All this talk of “zombie” may be put pressure on the wrong people. The goal should be to have the banks help the people, not to have them stand around like zombie vultures awaiting them to fall. For the system to continue to repair we must help the zombies who were caught in the mess because we were all zombies.

We don’t want the banks to rush to foreclosure and we don’t want the homeowners to sit around accumulating insane debt. As Schang wrote, we want the parties to negotiate. Unfortunately, these days the word “negotiation” seems more fictional than “zombies”.

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From → debts, economics

4 Comments
  1. I actually couldn’t agree with you more. While I am a mortgage banker, I work for a small direct lender that has been proactively trying to help people buy homes after recovering from challenges of the past.

    My motivation for the article (after trying to avoid the sensationalism of the metaphor for as long as I could) was the result of an article I wrote over 2 years ago about how to buy after a bk, foreclosure or short sale. That article now has 640 comments/stories from folks all over the country that were victim of, at the very least, bad advice form a bankruptcy attorney, and in the worst of the cases, completely inept and often negligent process and procedures for following through after a notice of default is recorded against the home.

    You can read that thread here: http://www.findmywayhome.com/home-mortgage-news/how-long-do-i-have-to-wait-after-a-bankruptcy-short-sale-or-foreclosure/

    There are 228 similar stories resulting from the bad advice of BK attorneys to just “walk away” after including a mortgage in a bankruptcy that is probably the number one cause for the creation of “zombies” – http://www.findmywayhome.com/home-mortgage-news/mortgage-discharged-bankruptcy-free-clear/

    I also would not put 100% of the fault on the banks, even though I think ultimately the blame firmly lies there. A big part of the problem is the old “one bad apple” theory of sleazy banking practices seizing up the process for everyone as the Government moved in to stop lenders from unjustly (or improperly processing the paperwork) foreclosing on distressed homeowners. This caused a ripple effect of foreclosure suspensions that took more than 4 years in some cases to work itself out.

    I have hundreds of stories from folks that have experienced this unfortunate by product of a still broken system. I agree completely that negotiation is a foreign concept to most servicers, but it seems like that’s changing ever so slightly. I hope that this information reaches the right people and I hope it causes change. I just don’t have much faith the the powers that be care about regular folks just trying to put hard times behind them.

    Good work here, I appreciate your contribution to the conversation.

Trackbacks & Pingbacks

  1. “Zombie Foreclosure Shake” [VIDEO] @ReinvestPartner @npquarterly @anye_east‎ | zombielaw
  2. more zombie real estate | zombielaw
  3. Florida Zombie Foreclosures @ScottGunnerson @darenjblomquist @Florida_Today | zombielaw

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