Zombie Houses? No, This is Not A Joke...

...though I wish it was.

From Cat Eyes

For those who are still blissfully ignorant, a "zombie house" is a house where the owner vacated the premises due to a foreclosure order, but then the bank simply did nothing past evicting the owners.  In the current system, the owner's name is still on the house so the owner still has all the homeowner responsibilities, but  doesn't know it because the bank never informs the owner about cancelling the foreclosure.  That means the houses typically get ripped apart from scavengers, built up property taxes, utility bills, and other maintenance bills.  Sometimes a house falls into such disrepair that it violates local housing code.  At least 15 houses blew up in the past year due to the gas being left on.

And the owner is left to pay for the entire mess.

I learned about this mess reading "'Zombie titles' haunt victims of home foreclosure", then I did a little research as to what is being done about it.  Currently, well.. the problem is getting some lip service from politicians.  But no one is stepping up with either a clear problem definition or a solution.

The problem is simple, if you ask me.  Banks have the ability to evict people from their homes, but they are not held responsible for the home after that.  A bank may sell the house immediately, sit on the foreclosure and hope the market improves, or even cancel the foreclosure because it has too many foreclosures to handle.  This situation breaks the basic Spiderman law - With great power comes great responsibility.

The solution is equally simple.  At the time when a bank evicts the home owner, the bank needs to buy the house from the home owner.  Start with an appraisal to get the current, fair market value of the property, and use that amount against the loan owed by the home owner.  If the mortgage is under water, then the bank takes a loss.  If the mortgage is above water, then the bank pays the home owner the difference between the loan amount and the fair market value of the house.

Now, the bank can decide what to do with the house without impacting the former home owners.

By the way, the reason I think the banks should simply take the loss is that compared to the average person, the bank more knowledge about the loan process, the home buying process, and a much greater level of sophistication.  For the current set of bad loans, the banks knew that they were writing unpayable mortgages, yet they still chose to do it.  In the future, I think we need some sort of independent panel to decide the division of responsibility between parties.

Thoughts?