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Rise of the zombie house

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When a bank files a motion to set aside a foreclosure judgment, often the courts consider the filing good news, assuming the lender and the homeowner have reached a settlement.

But things aren’t always what they seem, and courts can be at risk of being duped.

While a lending institution may give the impression to the judge that a settlement agreement has been reached, homeowners are often unaware that the scheduled sheriff’s sale did not happen or that a motion to vacate has been filed. The result can be abandoned properties falling into disrepair; cities unsure of who actually owns the eyesores; and homeowners, unknowingly, accruing past-due bills for taxes, interest and mortgages that they unlikely will be able to pay.

boyer-nancy.jpg Boyer

Notre Dame Law School Clinical Professor Judith Fox examined this phenomenon, what she called the “foreclosure echo,” in a 2013 article published in the Loyola Consumer Law Review. She looked at the impact that a bank’s often inexplicable decision to “un-foreclose” has on the judicial system as well as homeowners and communities.

“One thing I hope happens from my paper is that judges would just ask questions and just pay more attention,” Fox said.

The physical remains of these foreclosure reversals have been given nicknames that identify their scary implications – zombie home and zombie title.

Zombie homes arise when homeowners move out and abandon the dwellings, thinking the foreclosure process is completed or near completion. Zombie titles come to life after the foreclosure is finished but the lender returns with a motion to set aside the judgment.

Allen Superior Judge Nancy Eshcoff Boyer has seen the zombie homes in Fort Wayne neighborhoods and the attempts to create zombie titles in her courtroom.

“It’s getting to be a bigger problem,” Boyer said of zombie titles.

Motions to set aside a foreclosure judgment are coming anywhere from three months to, in one instance, seven years after the decrees were issued. The reasons given for the motion can be cryptic, so after she and her clerks became suspicious, Boyer started to routinely schedule hearings to find out why the lenders want to vacate the judgment.

Asking questions, Boyer said, is helping to prevent these homes from becoming problems for the community. Often in a foreclosure, the borrower will leave the house and with no one maintaining the property, the grass becomes overgrown, and vandals deface and strip the home.

The house then becomes a blight on the neighborhood. Eventually, the property will deteriorate to the point where the municipality has to demolish the home, which costs the taxpayers.

“That is really the reason I’m looking at these (motions) because I don’t want (the houses) thrown back on our community,” Boyer said.

Nobody’s home

Indiana is a leader nationwide in the percentage of foreclosed homes being vacated by owners.

manier Manier

The Hoosier state ranked ninth in January 2014 in the number of properties in foreclosure at 14,503, according to statistics from RealtyTrac, a California-based company that reviews housing data from across the country. However, with 31 percent of those homes vacated by the owner, Indiana has the seventh-highest number of zombie homes.

From September 2013 to January 2014, Indiana’s percentage of owner-vacated homes had declined by 12 percent.

In many instances what homeowners might not realize is that even though the bank foreclosed and they moved out, they still own the property.

Fox encountered this situation when a woman walked into Notre Dame’s Economic Justice Project, the consumer clinic that Fox supervises, with a notice from the city of South Bend that her home was in violation of building codes. The client explained she had appeared in St. Joseph Superior Court two years earlier and agreed to the foreclosure. When she received the notice of the upcoming sheriff’s sale set for June 2007, she moved.

Assuming the city had made a mistake, Fox made a phone call to resolve the matter but discovered there was no mistake. The lender had the court set aside the judgment and the homeowner was never notified. The woman who thought the foreclosure was finished learned she was, in fact, still responsible for the property.

Like her colleague in Allen County, St. Joseph Superior Judge Jenny Pitts Manier has been dealing with a “steady stream” of motions to set aside foreclosure judgments. Her approach has changed from assuming the motion means the foreclosure has been remedied by either a settlement or a short sale to getting a legal basis for the filing.

“My concern is people are evicted from their homes and then we’re saying, ‘Oh, forget it,’” Manier said.

If the motion does not provide a reason why the lender is filing or if the reason is vague, Manier finds time on her calendar to bring the attorneys to the courtroom.

“In this environment, it’s not a bad idea to set a hearing,” she said.

Adhering to the rules

The Office of the Indiana Attorney General has occasionally received complaints about zombie titles but currently there is little legal recourse available if the lender starts but does not complete the foreclosure proceeding and leaves the house in limbo.

Bryan Corbin, spokesman for the attorney general’s office, acknowledged the negative ramifications for neighborhoods and homeowners. He also pointed out that under current law, lenders are not legally obligated to inform the mortgage holders the foreclosure judgment has been dismissed or the process stopped.

In her research, Fox has found that lenders rarely supply reasons, let aloneaccurate ones, for wanting to set aside a foreclosure judgment. Most commonly, the language implied a settlement had been reached with the homeowner.

fox Fox

Both Boyer and Manier said they will vacate judgments when the lender and homeowner have crafted an alternative to foreclosure or when the reason satisfies Trial Rule 60(B), which spells out the valid reasons – such as mistake, fraud or to correct error – for setting aside a decree.

Unless Boyer and Manier receive the proper legal grounds, they will not set aside the judgment.

When Boyer began scheduling hearings, she met resistance. Lenders called her, asking why she was doing such a thing. The pushback reminded the Allen County judge of the opposition she got from lenders during the height of the foreclosure crisis who complained the state-required settlement conferences were ruining their business models.

Hearings may prevent lenders from tossing abandoned houses onto the shoulders of the community but, Boyer said, they do have a consequence for the courts. Namely, scrutinizing the motions and holding hearings use judicial time and resources, which are limited.

Still, she has noted since she started setting hearing dates, she is getting more answers to her questions about the motions to set aside. And that, she believes, translates into the courts helping to stop the zombies.•

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  1. I grew up on a farm and live in the county and it's interesting that the big industrial farmers like Jeff Shoaf don't live next to their industrial operations...

  2. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  3. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  4. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  5. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

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