Zombie foreclosures: Borrowers hit with debts that won't Die

Even though Christopher Warner's mortgage debt was extinguished upon his foreclosure, debt collectors are still seeking $120,000.

NEW YORK (CNNMoney)

Borrowers are discovering that their foreclosed homes are coming back to haunt them -- long after they have moved out.

In these "zombie foreclosures," borrowers move out after their bank schedules a foreclosure auction only to learn months or years later that the auction never took place or the bank never transferred the deed. That means the borrower still technically owns the house and is on the hook for property taxes, fees and homeowners' association dues.

Since the housing bubble burst seven years ago, almost two million properties have started but never completed the foreclosure process, according to RealtyTrac. While no one knows the exact number, it's estimated that tens of thousands could be zombie foreclosures.

Many of these homes are in low-income communities where foreclosures are so difficult to sell that lenders sometimes delay taking possession to save on taxes and other costs that then stay under the borrower's name.

Those debts can then go unpaid for years because the borrower is unaware they owe them, further slamming their credit score and making life after foreclosure even harder.

Related: 10 great foreclosure deals

"The most frustrating part is that I can't move on," said Rose Nathan, a 37-year-old office manager.

Nathan lost her South Bend, Ind., home in January 2009, after working out a deal with CitiMortgage to voluntarily walk away in a "deed in lieu of foreclosure."

"On Christmas Eve, the bank called and told me a sheriff's sale was coming and I had to move out right away," she said. "So that's what I did -- seven days after New Year's."

She sold her belongings and moved to Hawaii. Nearly two years later, she received a property tax bill from the City of South Bend for $5,000. The bank had never taken possession of the house.

Citi told her attorney, Judith Fox, that the holdup was due to a lien on the home that they were never told about. Nathan said she knew of no liens at the time of the transaction. Upon doing a title search, Fox found no evidence of a lien until well after the bank agreed to the deed-in-lieu deal.

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Back in the rental market? Some things to know

Do your research and shop around The housing market's slow rebound makes renting a good option for many. Former homeowners looking to recover their financial stability are joining new renters on the hunt for their first apartment and long-time tenants facing rising rental costs. But in the rush to find a place to call home, here's what all renters should know.

This past year saw rent increases in 70 percent of markets. The good news about the demand: the market is spurring investors to purchase distressed inventory to convert to rental properties, which may help bring rents back down. Shop around by checking free real estate websites with dedicated rental features, including maps and local information on desirable locations. Some websites have rental mobile apps that make exploring a particular neighborhood on the ground even more convenient. Additionally, research fair rent prices so you don't find yourself overpaying for a place.

Work with your landlord, but know your rights
Keep the lines of communication open with your landlord, but know the laws that protect you. On a federal level, the Fair HousingAct protects against discriminatory housing practices, so if your renter's application has been turned down, be sure to find out why.

Read up on your state's landlord-tenant laws, as tenants often do not realize their specific rights. Attorney Ryan J. Weatherstone of Mercer Island, Wash., offers one example: "Seattle tenants are required to be given a packet stating their rights under landlord-tenant law when they begin a tenancy each time a lease is renewed. Failure of the Landlord to provide these documents allows a tenant to break the lease early and/or seek a fine of $100 plus attorney fees."

Read the fine points of your lease before you sign
Typically, a lease protects you from rent increases while committing you to pay rent for the full term of the lease, even if you have to move out. But read your lease closely to prevent surprises. If you don't agree with certain provisions, see if you can negotiate with the landlord and make sure any changes are made on all copies of the lease. Pay attention to provisions about the security deposit, which is legally refundable — provided you leave your rental in the condition you found it. To ensure there is no dispute, first walk through with your landlord or property manager and document any damage in a written checklist as one would with a rental car. Send copies of date-stamped photos to your landlord.

Beware of illegal provisions that absolve the landlord of liability for negligent acts, waive the landlord's duty to repair the building or its systems, or allow the landlord to seize the tenant's personal property if the tenant fails to pay the rent. Weatherstone warns of general leases that some landlords use, such as those available "at Staples or other office supply stores or even on the Internet," which often contain terms that contradict state law and thus are void. One common error in Washington is "requiring the tenant to provide more than 20 days' notice prior to the end of a regular rental period to terminate a month-to-month agreement."

Understand your rights to privacy
While the general rule is that your landlord cannot enter your home without advance warning, notice requirements to enter the rental property vary from state to state. Landlords don't have to give notice in cases of emergency or when there's a court order. Check your state's privacy statutes or contact a lawyer or tenants' rights group to find out how much privacy protection you can expect.

Consider an eviction notice seriously
An eviction costs more than money; it damages tenants' credit scores: "The eviction will stay on their credit history basically forever," said Elizabeth Rankin Powell, an attorney based in Tacoma, Wash. "And it gets there the day the landlord files the action, win or lose." However, some states have safety nets. In Washington, evicted tenants have five days to "pay off the judgment and be restored to their tenancy, if they have a lease that has not expired," said Powell.

Buy rental insurance
Rental insurance offers an affordable form of protection from a range of hazards, from theft to fire damage. While you'll need to sift through insurance policies with a fine-toothed comb to see what protection will and will not be included, rental insurance is a good bet, especially when it can cost as little as $10 per month.

Get the assistance you need
The U.S. Department of Housing and Urban Development has a list of helpful resources and links for renters. Find information about tenant rights, laws and protections in your state. Many states and counties also have programs for low income renters that include legal counsel and sometimes even representation. Whatever your situation, take the time to learn your rights; it can make for a happy home.

Rental Market

Foreign Firms Eye U.S. Single-Family Rental Market

DAILY REAL ESTATE NEWS | THURSDAY, FEBRUARY 21, 2013

Several foreign firms are jumping into the single-family rental market of late, seeking high returns by snagging up homes at discounts, turning them into rentals, and waiting for an improved housing market. 

“The business of buying and renting houses, long dominated by local mom-and-pop investors, has morphed over the past two years into one of the hottest investments on Wall Street,” The Wall Street Journal reports. 

For example, US Masters Residential Property Fund, a real-estate investment trust mostly of Australian retirees, has raised $276 million to invest in the U.S. housing recovery. 

“Investors from countries whose currencies are strong can outbid U.S. investors because they also are hoping to make money from foreign-exchange rate fluctuations,” The Wall Street Journal reports. For example, for Australians, buying single-family U.S. houses is “really cheap” due to the currencies. 

US Masters is earning a yield of about 7 percent off its rental portfolio when accounting for operating expenses, but investors will possibly earn 30 percent more in profits when the fund sells its homes, according to a spokesman for the fund. 

The Toronto-based Tricon Capital Group Inc. also has jumped in, spending $160 million acquiring nearly 2,000 properties in California, Arizona, Florida, and North Carolina. It hopes to own up to 4,000 homes by the end of the year. 

"If I'm a foreign investor and I'm not entirely confident in my own economy, of all the places that I could put my money, U.S. housing looks like a really attractive place," says Lisa Marquis Jackson, senior vice president with John Burns Estate Consulting LLC.

Source: “Foreign Buyers Hop on Rental Trend,” The Wall Street Journal (Feb. 20, 2013)

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