“Zombie” Real Estate – the Deed That Would Not Die!

house abandoned

Northeast Ohio has been ground zero for the mortgage crisis of the Great Recession.  This has resulted in many homeowners who wind up walking away from their homes.  As home values decreased, it made less and less sense to continue paying the mortgage.

Bankruptcy is an option for those people.  Although it is rare that a mortgage company brings a lawsuit against a consumer to try and collect on the unpaid mortgage, getting a fresh start means that the debt is legally eliminated and the consumer can move on to re-build their credit.

Unfortunately, the discharge of the mortgage debt only prevents the mortgage company from trying to collect on the remaining balance of the mortgage note.  Legally, you are still on the deed to the home.  So there are two separate concepts, financial responsibility on the mortgage note, and ownership of the real estate as shown on the property deed.

So long as you are on the deed, you are the owner of the property.  This can be a real problem.  For example, let’s say that your city has a housing ordinance which requires that the grass be trimmed whenever it exceeds six inches in height.  When the housing inspector comes around, and notices the violation, they send the violation to the property owner, as determined by the deed.  The frustrated consumer tries to explain to the housing court – hey, I filed bankruptcy! However, the housing court is right, it is the homeowner who is responsible for maintaining the property.  Again, the bankruptcy discharge only prevents collection on the unpaid mortgage note.

What can the homeowner do?  Here are a couple of suggestions you may want to explore.  You don’t need an attorney to pursue them

  • “Pre-Foreclosure” Sale. Also known as a “short” sale.  This will allow you  to sell your property to another person so that the maintenance is now their problem, not yours.  You may qualify if 1) the “as is” appraised value is less than 70 percent of the amount you owe and the sales price is 95% of the appraised value
  • The loan is at least 2 months delinquent prior to the –pre-forelcosure sale closing date
  • You are able to sell your house within 3 to 5 months (depending on what your lender agrees to)

The mortgage company may be willing to provide you with assistance with the Seller pre-paid closing costs.

“Deed in lieu of foreclosure”  You may be able to voluntarily give the property back to the lender.  Normally, the lender is the only one who bids on the house at a sheriff’s auction anyway.  You can qualify if:

  • You are in default and don’t qualify for any other options
  • Your attempts to sell the house at a pre-foreclosure auction were not successful
  • You don’t have another FHA mortgage in default

Cuyahoga County also operates a “land bank” which accepts quit claim deeds from homeowners who don’t want their homes anymore.  The land is then used for public purposes like parks and community gardens.  To find out more about the Cuyahoga County land bank, click here.

Blake Brewer is an Ohio attorney who, among other legal services, helps consumers get a fresh start.  He is a debt relief agent as defined by the Bankruptcy Code. While reading this summary does not create an attorney client relationship, you can contact him by email at blake@blakebrewerlaw.com or call him at 216-642-8234 to schedule an appointment.    Do not delay as the passage of time can seriously affect your rights in any legal matter.

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