February 5, 2014
by Stephanie Schilling
RCO Legal, P.C. – USFN Member (Alaska, Oregon, Washington)
Judicial foreclosure can be a lengthy process. There are often numerous attempts at loss mitigation before a home is referred for foreclosure, which means that it may be years from the date of default to commencement of a judicial foreclosure action. While a judicial foreclosure itself should not take longer than six months, this time is usually extended by circumstances beyond the mortgagee’s control, such as bankruptcy filings and difficulty in locating defendants.
The extended period of time it takes to judicially foreclose a property plays one small part in a much larger issue for communities. This larger issue is vacant properties. Outlined below are those circumstances in which vacancy becomes an issue during the course of a judicial foreclosure, and the actions being taken by attorneys general throughout the United States in order to prevent the negative ramifications arising as a result of property abandonment.
Upon referral of a mortgage (or deed of trust) for foreclosure, the mortgagee has usually been made aware as to whether or not the property is owner-occupied or vacant. At the time of referral, a determination as to whether the property must be registered as vacant with the local sheriff must be made. Many communities now require not only the defaulting owner, but potentially the mortgagee, to register the property as vacant in order to notify the sheriff to be watchful for criminal activity such as trespassing and drug abuse. The second point at which vacancy becomes an issue in a judicial foreclosure is during service of process. All parties with a possessory interest in the property must be made aware of the judicial foreclosure action. Finally, if judgment is obtained and the mortgagee becomes the successful bidder at the judicial foreclosure sale, the vacancy of the property will determine whether a post-sale eviction matter must be commenced.
Using National Mortgage Settlement Proceeds
Any delays prior to, or during, a judicial foreclosure can lead to the subject property remaining vacant for months to years. The negative impact of this vacancy and abandonment can result in destructive acts, including the removal of fixtures, metal pipes, and wiring. Once the foreclosure is complete, the foreclosed property may be simply a shell left as a blight to the neighborhood and community. For this very reason, a number of state attorneys general (including Illinois, Ohio, Kentucky, and New York) have begun measures to use the proceeds of the National Mortgage Settlement to raze the properties and restore communities. The hope is that demolishing abandoned properties will restore the community to its former level of neighborhood involvement and open up cities to new development opportunities.
Many cities do not have sufficient resources to accomplish this recovery on their own. The process of foreclosure does not exist within a vacuum, but effects communities — requiring expedited foreclosure of properties that have been abandoned by the owners who promised to pay for them. The solution brokered by several state attorneys general allows the use of National Mortgage Settlement funds to commence a recovery on Main Street that will have a direct economic impact on Wall Street.
For information regarding whether vacant property registration is required in a particular area, a helpful resource is: http://www.safeguardproperties.com/Resources/Vacant_Property_Registration/Default.aspx?filter=vpr.
Additionally, for information regarding the National Mortgage Settlement, please see http://www.nationalmortgagesettlement.com/.
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