Banks are increasingly tossing a new wrinkle into the foreclosure process — refusing to take possession of a property after they foreclose.
Billy lends Johnny $10, accepting Johnny’s hamster, Mr. Fluffy, as collateral. When Johnny can’t pay the money back, Billy demands Mr. Fluffy. Sadly, Johnny says his good-byes, delivers the hamster to Billy’s doorstep and leaves. But Billy takes one look at Mr. Fluffy and decides he doesn’t want him. He leaves him on the doorstep.
Mr. Higgins walks by, sees the Mr. Fluffy in his cage on the porch, and takes him away to keep him from dying. After a few months, he sends a bill to Johnny for the hamster food he bought.
“He’s Billy’s hamster,” Johnny explains. “I couldn’t pay him back the $10, and I had to give him Mr. Fluffy instead. That was the deal.”
Billy shrugs. “I changed my mind.”
Mr. Higgins looks at Johnny. “Sorry, kid. looks like he was yours all along. Nobody told you.”
* * *
In the real world, banks are going through the foreclosure process (i.e., demanding Mr. Fluffy), then at the last moment refusing to actually take legal possession (leaving him on the porch).
That leaves the original owners — who in many cases have moved out after months of foreclosure proceedings — responsible for the properties, even if they’ve never been aware of what happened. (After all, if someone demands something from you for months and you give it to them, you don’t expect them to quietly change their mind.)
They often learn this fact when they start getting bills from the municipality (Mr. Higgins) for upkeep.
Ironically, one legal issue that’s arising is the difficulty determining who actually holds the deed. A New York Times article on the issue talked about the case of Mercy James of South Bend, Ind., who had been foreclosed on… until the bank changed its mind at the last moment.
In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.
The end result of bank walkaways (there’s even a Wikipedia entry about them!) are abandoned homes, some of which become vandalized, dangerous, and worthless.