Another Nightmare, “Zombie Title” Shows How Servicer Refusal to Foreclose Hurts Stressed Homeowners and Communities

One of the popular conservative memes is to fulminate that lots of Americans have been living “rent free” in homes slotted for foreclosure, taking advantage of the fact that court dockets are crowded. This talking point is untrue on multiple levels. First, the delay in foreclosure is due to servicers gaming the system. Attenuated foreclosures allow servicers to suck more of the value of the properties away from investors to themselves by continuing to charge late and various “junk” fees, which will be recouped when the home is finally sold. In Florida, one of the ground zeros of foreclosures, it is overwhelmingly the banks, not borrower attorneys, who are putting off foreclosures. Second, borrowers not living cost-free in the homes; are maintaining the properties and liable for property taxes. Third, it is not a party to live in a home with the uncertainty of eviction hanging over your head.

An important Reuters piece documents the flip side of this picture: what happens when the servicer starts foreclosure but keeps the property in limbo-land, and the homeowner has decamped, on the mistaken assumption that foreclosure was imminent? The Reuters tag phrase for this syndrome, “zombie title” doesn’t begin to do justice to the horrorshow that borrowers experience. Consider: a stressed borrower leaves the home, thinking that the bank will take it, so he pays moving expenses and is renting somewhere else. In reality, the bank is continuing to rack up more and more mortgage payments and related fees, and his local city/town is not only continuing to assess property taxes, but may also fine him for abandonment of the property.

The knock-on consequences can be devastating. They show in fact that borrowers who do not stay in place until a bank forecloses are committing economic suicide. And the article by Reuters reporter Michelle Conlin makes clear this is not a trivial number of homes. Of 10 million homes where the banks have started foreclosure in the wake of the crisis, roughly 2 million in limbo. She writes:

Six years in, thousands of homeowners are finding themselves legally liable for houses they didn’t know they still owned after banks decided it wasn’t worth their while to complete foreclosures on them. With impunity, banks have been walking away from foreclosures much the way some homeowners walked away from their mortgages when the housing market first crashed…

No national databases track zombie titles. But dozens of housing court judges, code enforcement officials, lawyers and other professionals involved in foreclosures across the country tell Reuters that these titles number in the many thousands, and that the problem is worsening….

When people move out after receiving a notice of a planned foreclosure sale and the bank then cancels, municipalities are left to deal with the mess. Some spend public funds on securing, cleaning and stabilizing houses that generate no tax revenue. Others let the houses rot. In at least three states in recent months, houses abandoned by owners and banks alike have exploded because the gas was never shut off.

The story leads off with the case of Joseph Keller, who with his wife left his home five years ago, which was a few weeks before Chase sent him a notice of an impending foreclosure sale. But the bank cancelled the sale, leaving Keller even worse off:

First, in 2010, the county sued Keller because the house, already picked clean by scavengers, was in a shambles, its hanging gutters and collapsed garage in violation of local housing code. Then the tax collector started sending Keller notices about mounting back taxes, sewer fees and bills for weed and waste removal. And last year, Chase’s debt collector began pressing Keller to pay his mortgage, which had swollen, with penalties and fees, from $62,100.27 to $84,194.69.

The worst news came last January, when the Social Security Administration rejected Keller’s application for disability benefits; the “asset” on Avondale Avenue rendered him ineligible. Keller’s medical problems include advanced liver disease, hepatitis C and inactive tuberculosis. Without disability coverage, he can’t get the liver transplant he needs to stay alive.

And others in his situation face similar financial pain:

Unsuspecting homeowners have had their wages garnished, their credit destroyed and their tax refunds seized. They’ve opened their mail to find bills for back taxes, graffiti-scrubbing services, demolition crews, trash removal, gutter repair, exterior cleaning and lawn clipping. At their front doors they’ve encountered bailiffs brandishing summonses to appear in court.

In some cities, people with zombie titles can be sentenced to probation – with the threat of jail if they don’t bring their houses into compliance.

And it is not as if the borrowers had any way of knowing about the bank volte face:

No regulations require that banks let homeowners know when they change their minds about a foreclosure. So they rarely do, according to housing court judges, homeowners’ lawyers and academics who study foreclosure problems. “The banks do not answer inquiries, they do not answer phone calls, they do not answer letters,” says Judge Patrick Carney of the Buffalo, New York, Housing Court. His zombie-title caseload has swollen in the past few years to well into the hundreds. “The whole situation is surreal,” he says.

And of course, the banks come out ahead:

By walking away, banks can at least reap the insurance, tax and accounting benefits from documenting the loss — without having to take on any of the costs and responsibilities of ownership, according to a 2010 Federal Reserve paper. A walk-away also enables them to “sell the unpaid debt to debt collectors, sometimes noting to the court that the loan has been charged off,” according to a Case Western Reserve University study released in 2011..

Banks say that because they are not the legal owners of these homes, they aren’t required to maintain them, pay taxes on them, or take any legal responsibility for them. Homeowners legally own their properties until the day of sale. And it’s not until that day, the banks point out, that a homeowner’s name vanishes from the title.

I strongly suggest you read the article in full. Conlin provides grim and compelling examples of how much damage this abusive practice inflicts. Please send her report along to your Congressman with a suitably irate cover note. Rectifying this abuse needs to become a top priority of the Consumer Finance Protection Bureau.

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    1. R Foreman

      So who becomes the owner when the bank sells the bad loan to a collection agent? Since they didn’t foreclose I think the answer is the homeowner still holds title and the bank has somehow relinquished all claims to the property. So strange.

      1. Nathanael

        That is correct in at least some states. In a lien theory state, by “selling the loan” to a collection agent, the bank separates the note from the mortgage and thus releases its lien against the house.

        The homeowner now owns the house free and clear, and can declare bankruptcy while keeping the house. Of course, nobody bothers to TELL the homeowner this.

        (I think it may be different in title theory states.)

        1. Nathanael

          Note that in a title theory state, the bank holds the legal title as long as the mortgage is present. This should make the situation rather different and I’m honestly unsure how it would work.

        2. Nathanael

          Oh. Note that it would be different if the mortgage was also transferred to the “debt collector”. This appears to happen automatically in some states (where “the mortgage follows the note”). It would be interesting to know if the “debt collectors” ever try to foreclose.

  1. Richard Davet

    Ahhhhh………………one of the benefits of the “GSE Business Model”. It is designed that way….ie, no player in the Model is responsible. Just point the finger at the proceeding player who signed the same reps and warrants contract.

    No one is following the money. Ultimately you get back to the GSEs who were blessed with the US Treasury’s guarantee of their worthless MBSs. Who gave the GSEs the guarantee? No one would buy ten cents worth without the guarantee. All roads lead to the Congress who first gave the implied and now implicit guarantee to the worthless Business Model and their MBSs.

    Recall Barney Frank saying a few years ago that “Fannie Mae will not cost the US Taxpayers a dime”. He was right of course, as it has now cost the taxpayers a $190 Billion with no end in sight.

    Where are the prosecutors in this “theft by deception scheme”? Why are the very individuals in Congress who caused this mess by issuing the guarantee now charged with resolving it?

    Sucker punched again. If you don’t pay attention, they will eat your eyeballs out.

    1. EMichael

      “Ultimately you get back to the GSEs who were blessed with the US Treasury’s guarantee of their worthless MBSs. Who gave the GSEs the guarantee? No one would buy ten cents worth without the guarantee.”

      I do not think you could put more incorrect thoughts in such a short statement.

      You think the GSEs have issued worthless MBSs? On what planet?

      Have you somehow missed the scores of lawsuits currently in action(or settled for silly little amounts)regarding fraudulent MBSs? Somehow missed the fact that the GSEs are not the defendants in those cases, but the plaintiffs?

    2. dw

      not sure why you think its the GSE that caused this. maybe that a idealogical bias ignoring that its the banks and wall street that did it. also curious does the bank give up all rights if they stop the foreclosure? or is it just they stop that, but keep their claim? and if these are part of a MBS, does that cause more of a problem for the ‘investors’ (aka suckers) who own them? and why wouldnt the banks tell the ‘home’ owner that they did, since that would seem to protect the assest of the loan? or do they really not care about who they are suppose to be representing (the mortgage holder)? if they fail to do that, do they end up having to buy the loan back from the GSE and the ‘investors’ or are they subject to being sued by them for failure to protect the asset?

  2. leapfrog

    Yves, I liked your descriptor of “larded-on fees” in a prior article (sorry, I forget which one), but I use that phrase all the time. It’s the perfect descriptor and catch-all for servicer abuses.

  3. sleeper

    Please buck up folks all is not lost –

    In reality, the bank is continuing to rack up more and more mortgage payments and related fees,

    So the bank continues with the fiction that these fees are “income” and presto the bank is a solvent money making enterprise.

    No need for a bail out, no need for special window rates at the treasury just a little more fraud say 20% more and happy days are here again.

  4. Marcus

    I filed for bankruptcy and had it discharged in Las Vegas over two and a half years ago and the property is STILL in my name. I haven’t lived on that side of the country since before the discharge, too. There’s no way in HELL I’ll be responsible for any charges – yet, I keep getting notices from the mortgage that my interest rates are changing.

    I also had a few thousand dollars in escrow at the time and periodically receive a notification stating there’s a surplus. When I call to inquire about it, I’m told they won’t issue a refund unless I’m up to date on the payments. I questioned why I even have an account still since it was discharged and the reply is it will stay in my name until the title changes ownership.

    I’m thinking there’s some technicality such as the surplus in escrow, keeping the property taxes paid, that’s prevented the home from going into foreclosure – but I could be wrong.

  5. Joe

    So what happens after a person goes through bankruptcy, has the mortgage discharged and the bank still refuses to foreclose?

    Is the original home owner still on the hook for the things described in this article?

    1. RAWLAW

      Yes, you are still on the hook…even after bankruptcy! BUT their is good news! You (as a GRANTOR) can execute a “quit-claim” deed to the bank (as a GRANTEE) who has the mortgage. Once the deed is executed (signed/notarized/witnessed), you can take it to the deed records filing room of the county courthouse where the property is located, pay the recording fee, and now the bank “undoubtedly” owns that property going forward.


      1. LucyLulu

        Thanks. That makes sense and I assume can be done at a reasonable cost. Now we need to figure out how to get the word out to those who have been affected!

      2. The Infamous Oregon Lawhobbit

        How are you on the hook after a discharge in bankruptcy? That’s the purpose of a “discharge.” Can you point me to something in the bankruptcy code that confirms that, please?

        1. Bridget

          This guy here outlines how to do it.

          But I would imagine that a conveyance to an unwilling or unknowing grantee would ultimately be voided by a court. Think of the potential mischief.

          And a word about the other side of the story. I am personally aware of several situations in which the borrowers themselves, not looters, stripped the mortgaged property of appliances, fixtures, copper, etc. and in some cases intentionally damaged the property. That too, is wrong.

          It’s really in the best interests of both parties to work out a deed in lieu of foreclosure and debt forgiveness or a loan modification. It’s just too bad that it doesn’t work out that way as often as it should.

        2. just me

          I was wondering the same thing.

          Also remembering a NY Times story from last year when banks were sending out “wonderful news!” letters to people with home loans:

          “We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America.

          Except the people didn’t owe that money anymore, it had been wiped out in bankruptcy years earlier. But apparently now the banks were “forgiving” that nonexistent debt and could get credit under the AG mortgage settlement as if the debt still existed. Further, the banks report it to the IRS, and now the people will owe taxes on the mythical “forgiven” amount — tens to hundreds of thousands of dollars.

          Gretchen Morgenson:

          So I asked Joseph A. Smith Jr., a former banking regulator in North Carolina who is monitoring the settlement, how he planned to vet the banks’ claims of relief provided and credit earned. For example, how will he ensure that institutions do not receive credit for releasing liens that have been eliminated?

          “We will review compliance with this requirement as we will with all of the consumer relief requirements,” Mr. Smith said, “through review of the corporate records relating to such transactions.”

          In other words, they’ll ask the banks.

          Yves covered that story here:

          1. DolleyMadison

            yeah I have experience with how Mr. Smith provides oversight – his staff at the NCCOB ignored bank receipts, printouts from Ocwen’s own website and ACTUAL LETTERS to me from Ocwen’s “Ombudsman” and other proof of Ocwen’s law breaking and not only did his staff not assist me, but openly mocked me and actually took Ocwen’s side. No reason to beleive he will change his stripes now that he is on the national stage.

      3. Joe

        And if the property has a first and second mortgage? I would think that would complicate the quit-claim, no?

    2. Nathanael

      This is a weird situation, because if the homeowner’s debt to the bank has been erased in bankruptcy, but the title to the home hasn’t been transferred, *the homeowner owns the home outright under law* and should be able to sell it for cash with clear title (since the mortgage has been eliminated).

      I bet the crooked banks don’t let that happen.

  6. Eric Patton

    The only way to get the ruling class back is to threaten the capitalist system. They care about nothing else; all their power and wealth derive from it.

    1. Sierra7

      Uh……..the French had a device for just such occasions especially during the French Revolution!
      (Just saying………)

  7. Javagold

    still i will never understand why everyone just does not stay in their homes as long as possible and fight these fraudsters…..but i guess, thats just me

    1. enraged

      No Javagold, it is not just you. People are afraid of fighting. Thet walk out at the first sign of trouble. Among the few who do fight, many don’t know how or, right off the bat, decided that they couldn’t win. They kinda-sorta fight for a little while as pro se while relying heavily on website such as Livinglies (which has gone down since last June and has become almost useless) and they stumble upon a judicial system they don’t understand and a game they can’t play. They lose one battle and give up, thinking and all is lost.

      It takes courage to sit still and remain steady until the end. And it takes faith. Absent either one, people can’t get closure.

  8. nick j

    this has to be the death knell of capitalism? if real property isn’t subject to a stable, secure and predictable regime, you’re looking at anarchy.

    1. KnotRP

      ….(mumble, mumble) all enemies, foreign and domestic (mumble, mumble)

      Maybe some foreign power wanted to take us down,
      and decided to corrupt the very basis of private
      property since that’d be safer/easier than nuclear

      I’d say there is a foreign or domestic criminal agent
      picking us apart using greedy sociopaths as mules.

      1. financial matters

        For sure. And with the rentiers being able to freely add fraud to their playbook it’s difficult to fight back. Our financialized ‘democracies’ are leading most folks into austerity rather than trying to find the road to a productive economy where real labor and wages are distinguished from unearned income.–el-erian

        Farewell to Inflation Targeting?
        Mohamed A. El-Erian
        Dec. 20, 2012

        “”the problem is a polarized Congress that has taken no major economic decisions in the last few years – other than missteps (like the fiscal cliff) that risk tripping the economy into recession.

        1. Nathanael

          When the courts are supporting fraud, pretty quickly the people stop supporting the courts.

          As soon as the police stop supporting the courts, it’s all over.

          Alternatively, as soon as the people (en masse) stop accepting the authority of the police, it’s also all over, unless the police constitute a minimum of 10% of the population (based on historical examples).

          This is going to happen except in places where the courts are supporting the rule of law. I think Massachusetts and NY will probably be all right since their courts have cracked down on the most egregious stuff.

          Not so sure about other states.

    2. LifelongLib

      It’s still secure, stable, and predictable for people who can afford high-priced lawyers. Just not for you and me.

    3. Nathanael

      Yes, this is the death knell of capitalism. The only question is what will replace it. Get working.

      And remember, possession is nine-tenths of the law.

  9. sleepy

    One possibility–once you’ve been served with the foreclosure papers, assuming this is a judicial foreclosure state, file a notice of appearance and request for notice type of pleading with the clerk of court and send a copy to the bank’s attorney.

    That way, legally at least, you are entitled to all notices that come out of the foreclosure proceeding including any postponement of the sheriff’s sale.

    1. just me

      Pennsylvania is a judicial foreclosure state? What do you think of Miss Fran’s story?:

      I have lived in Philadelphia all my life, and in this house since 1988. Once when I was forced to file for bankruptcy, my mortgage holder, Chase Bank, suddenly came to court and objected to my bankruptcy plan. Although the law requires them to notify me in advance, I had no warning of their action, so I had no lawyer and no time to prepare my evidence. The judge dismissed my file for bankruptcy and Chase began foreclosure proceedings.

      I participated in Philadelphia’s Mortgage Foreclosure Diversion Program, so I was able to keep my home off the sheriff sale list. Then they claimed I missed a Conciliation Conference even though they had never notified me about it. When I complained, the court rescheduled the sheriff sale of my home from July 1, 2008, to September. I attended that sale on July 1 and was shocked to hear them put my house up for sale anyway. I was in the back of the auditorium and ran to the front making so much noise the sheriff’s lawyer had to stop the sale. Finally they brought in a letter from the sheriff saying they had obtained a court order that same day to sell the house. They had gone to court without even notifying me. The same judge who postponed the sale in the first place had turned around and vacated his own order, all without telling me.

      The sale of my home went through on July 1, but my battle was just beginning. Although Chase Bank foreclosed on my home, I found out the sheriff changed the name on the documents to Fannie Mae. There is no bill of sale from Chase to Fannie Mae and no record of any transfer. Fannie Mae has no legal standing to evict me. But that didn’t stop them from trying. They sued to evict me in April 2011. I filed an objection, it was overruled, I answered them, and we were supposed to go to trial in February 2012. Then they filed for a summary judgment against me, which is only supposed to be granted when there is no dispute in the matter. I told them we most definitely do have a dispute: a district court order was ignored and Fannie Mae has no standing. But the judge granted the summary judgment anyway. They obtained a writ of eviction and scheduled my eviction for June 12.

      1. just me

        As for the Fannie Mae part of this story,

        Although Chase Bank foreclosed on my home, I found out the sheriff changed the name on the documents to Fannie Mae. There is no bill of sale from Chase to Fannie Mae and no record of any transfer.

        I’ve wondered if that has anything to do with Tom Cox’s finding of Fannie “decoy assignments,” which was a dodge that Fannie/Freddie do to hide their interest in a foreclosure — a decoy assignment to camouflage that they’re the true owner, or would be if they had recorded the assignment, but their guidelines tell the originator not to record it.

        From podcast at

        Tom Cox: When you dig into the Fannie Mae loan servicing guidelines, sure enough, right there is the very clear requirement, “When you sell us a loan, you give us the note and you give us that mortgage assignment, but don’t you record that assignment.”


        Martin Andelman: Fannie Mae guidelines are 1178 pages, right?
        Tom Cox: That’s right. That’s just Fannie.


        Tom Cox: If Wells Fargo had bought that loan from some other loan originator, Wells Fargo would get a second assignment, but that one would be recorded, and that one would make it look like Wells Fargo really did own the mortgage.


        Tom Cox: If that originating lender had already given a formal assignment to Fannie Mae, that originating lender had nothing left to assign to Wells Fargo, and that second mortgage assignment doesn’t do anything other than give a perception that the servicer really has an interest in that mortgage that they don’t actually have.

      2. Nathanael

        This is such a gross miscarriage of justice. She should have named the crooked judge. The correct thing to do is to file with an appeals court for an emergency injunction due to multiple prejudical clear errors by the crooked judge. That’s hard to do. If that doesn’t work, the next step is simply to refuse to leave. The next step after *that* involves revolution.

  10. ScottB

    Remember when millions were going to go the “jingle keys” route? Now we’ve got jingle keys in reverse. To quote Hank Williams, “You win again…”

  11. Tom

    If the house has been put into an MBS – don’t the security holders own the place?
    Don’t the MBS holders have to start the foreclosure?
    If the security fails – don’t the MBS holders take a loss?
    If the MBS holders take a loss, don’t they write it off and take a tax position?
    If the MBS holder takes the loss and writes it off, isn’t the debt extinguished?
    Even if a debt collector buys out the remaining loss (5 cents on the dollar), Aren’t they dis-allowed from collecting because the debt has been extinguished?
    The mortgage and the note have to be in the same place (the tail and the head of the dog move together)- if they are not, then no one has a right to collect?

    1. Sierra7

      your last line about “….who owns the (possession deed trust) property”
      In a vast number of cases nobody knows………even the courts.

    2. DolleyMadison

      Anyone being foreclosed on allegedly by the “noteholders” of a MBS Trust needs to get the PSA for the Trust – almost all of them have a clause stipulating that “under no condition do noteholders have rights or ownership of the underlying collateral” So they if they have no rights to the prommissory notes – the collateral – and none of them appear on Deeds of trust or Mortgages – then how can they foreclose on the note?

    3. Nathanael

      The trustee for the MBS Trust is supposed to initiate and execute the foreclosure.

      Of course it usually turns out that the MBS Trust never legally owned the note or the mortgage. The trusts cannot take _ultra vires_ actions — they are strictly limited in their actions by the Pooling and Servicing Agreement. Most of these mortgages were never transferred into the trust according to the terms of the PSA, and so it was impossible for the Trust to acquire them.

      This is a set of facts which has been weirdly difficult to explain to judges. The result of these facts is that any house which was supposedly “foreclosed” on by one of these MBSes has bad title. The title can only be cleared by a complex series of quiet title suits, preferably made by someone sitting in adverse possession.

      1. DolleyMadison

        YEP! Ocwen filed FC on me “on behalf” of HSBC as Trustee – then assigned it to HSBC days before filing FC! Crazy! If HSBC was Trustee, why didn’t they already have the note? (noone ever produced it BTW)

  12. FunTimeSteve

    “Homeowners legally own their properties until the day of sale. And it’s not until that day, the banks point out, that a homeowner’s name vanishes from the title.”

    In Illinois owners are still responsible after the day of the sale. It’s not until the sale is confirmed by the court that they’re clear of the property. It usually takes a couple months for the sale to be confirmed, but there are freak cases where it takes a couple years. Once the sale is confirmed the new owner is responsible for expenses from the sale date onward, but until then the prior owner is obligated to front those expenses or risk collections.

    Another form of limbo occurs when the bank delays recording the deed with the county. This is done to delay paying things like HOA/condo dues, and then they’ll try to push the debt off onto the new buyer.

  13. LillithMc

    Not only has the homeowner moved due to the bank notice that the foreclosure sale is imminent, the recourse law preventing the bank from going after the shortage could expire. This is an especially large amount in underwater areas. The tax law giving a break from “mortgage relief” could expire. Both could be bills so large the homeowner could never pay. The homeowner still has any bills they ran up for home repair on credit. The bank servicer can use the vacant house as an excuse to dump it to a “friendly flipper” for a low cost. Who is responsible for vandalism of the home? I believe this scam was set up by the Gramm-Leach bill in 1999 that said it was ok to ignore state laws and gave the banks a pass on prosecution. The con was planned and it destroyed and is still destroying millions of homeowners.

  14. sharonsj

    If I were Mr. Keller and had been given a death sentence, I’d get one of those soon to be banned machine guns and pay a visit to the Chase branch and/or headquarters responsible. It might give the CEOs second thoughts about the foreclosure mess.

  15. Bishop Brady

    Simple (simplistic?) logic suggests that if the bank owns 95% of the home and the ‘owner’ 5% based on their contract and the title, then the bank is 95% responsible for costs associated with upkeep, taxes, etc. Towns and states should collect from the bank first, and the bank is free to pursue the mortgagee.

  16. just me

    No national databases track zombie titles.

    What about MERS? Can’t it be queried? Can’t it be required to be able to be queried? In theory, MERS is supposed to be legally competent in some national mortgage database way…no? In this situation, I’d think it would be more likely to come up with correct info than county registers of deeds, since it’s the banks’ own database.

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  18. Hipolito Faria

    Great insight for the folks who want to “go it on their own”. There are truly so many pitfalls that one may encounter through the building proces. I just think many people are not informed enough to know the real value a Realtor can bring to the process.

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