Posted in the Milwaukee-Wisconsin Journal Sentinel by Cary Spivak:
Rodney Lass figured his days as a homeowner were over when he was hit with a foreclosure judgment more than a year ago.
He stopped rehabbing his two-story Bay View home and moved on.
But what Lass didn't realize until recently is that the house remains in his name today.
He's still responsible for the taxes, upkeep of the property and the mortgage, leaving Lass perplexed.
"Why would I pay for something that I don't own anymore?" Lass said.
The foreclosure, however, failed to go through after the California-based lender decided it didn't want the gutted house. Lass said he found out for certain that he still owned it from the Journal Sentinel.
Today, the house at 703 E. Lincoln Ave. sits condemned, holes in its roof, a blight on the working-class neighborhood.
The home represents a growing phenomenon known as walkaways - properties for which lenders sue for foreclosure but never take the title.
For years, lenders complained about debtors who left the keys on the kitchen table and skipped town, leaving it to the bank to file for foreclosure and eventually take title by buying it at a sheriff's sale.
The latest twist: Now it's the lenders who are doing the walking, often without telling the borrowers, who may believe erroneously they have already lost title.
"This is just the meanest and nastiest thing (lenders) could do," said Catherine Doyle, chief staff attorney at the Milwaukee Legal Aid Society. "Even more profound is the terrible damage to the community. All of us are going to have to bail them out."
City officials, lawyers and community activists say they've seen an increase in lender walkaways, although they can't estimate how large the problem is.
The Journal Sentinel found more than $400,000 in back taxes, fees and demolition costs owed on nearly three dozen properties that lenders foreclosed on in the past two years but didn't complete the process. Three more have been condemned and are scheduled to be bulldozed at an estimated cost of up to $15,000 each.
"I don't like hearing about money owed to the city at a time when the city is strapped financially," Mayor Tom Barrett said. "That's a concern. That's a huge concern."
'This is just madness'
Cities throughout the country are seeing an increasing number of walkaway properties, said Kathleen Day of the Center for Responsible Lending. She said she knew of no other attempt to quantify the extent of the problem or its impact on a city.
"We hear about it anecdotally all the time here - all the time," Day said. "This is just madness. There has got to be some better way."
The seeds for the growth in orphaned properties were planted in the years before the housing bubble burst - back when buyers, sellers and lenders all acted as if prices could only go up.
Mortgages were readily available to all. Subprime loans were doled out to borrowers with questionable financial track records or those who could not, or would not, document their income. The mortgages were packaged as securities and sold to investors across the globe.
In 2007, Americans owed $1.3 trillion in subprime mortgages - a nearly 300% increase over just four years earlier.As many as half of all subprime loans were given to borrowers with no more than limited documentation of their income, according to the Center for Responsible Lending.
At the end of March this year, a record 12% of all U.S. mortgages were delinquent or in foreclosure, according to a Mortgage Bankers Association survey. Nearly 9% of the mortgages in Wisconsin were in foreclosure or delinquent.
Matters can get particularly complex if a borrower dies and heirs do not want the house.
"It's just out there; nobody owns it," said Janet Resnick, a probate lawyer with 21 years of experience.
Case in point: the vacant, boarded-up two-story house at 2721 N. 26th St., which for years had been owned and rented out by Rosella Chambers.
In 2006, Chambers refinanced the 100-year-old frame house for the second time in four years. She received a $68,800 adjustable-rate mortgage through BWM Mortgage, a now-defunct Wauwatosa mortgage banker. The loan was for nearly $30,000 more than the property's assessed value.
On May 20, 2008, Minneapolis-based U.S. Bank sued her for foreclosure. The bank had no interest in the mortgage - it was merely the trustee for an investor group that owned the mortgage. U.S. Bank had been instructed to sue by Pennsylvania-based GMAC Financial Services, which serviced the mortgage for the investor group. GMAC services about 2.7 million mortgages with a balance of $386.3 billion.
A foreclosure judgment was issued in Milwaukee County Circuit Court in August but vacated, at the lender's request, on Oct. 22 - less than two weeks after Chambers died following a long illness.
Chambers' daughter, Dianna Myles, said she was offered the property but did not want it. Myles said the house needed work even while her mother was alive, and since her death it had been stripped of all valuables and vandalized.
The city boarded up the house this year and began its own foreclosure proceedings for back taxes.
"There is no property owner," Myles said.
There are, however, unpaid bills owed to the city. Unpaid property taxes and fees total $15,280. An additional $995 is owed for board-up costs and to clean up litter around the property.
Decision-makers far away
Typically, the decision on whether to continue a foreclosure action is made by the out-of-state loan servicing company hired to manage billions of dollars worth of mortgages.
"There's still this stereotype that we're dealing with the banker from 'It's a Wonderful Life,' " Barrett said. "We're not."
Local housing officials and real estate agents who deal with foreclosed and abandoned properties say out-of-state lenders don't know the condition of a property when the foreclosure process starts. By the time their representative checks out the property, it already may have sat vacant for months, making it a target to vandals, squatters and Wisconsin's harsh winters.
"The pipes will burst and the city fines my clients and it's a real freakin' mess and nobody is sure who has what rights," said Michael Watton, a bankruptcy lawyer who said he tells his clients to stay in a house until the legal processes are concluded.
Loan-servicing companies argue they have a fiduciary duty to the investors who bought the mortgage, not to the neighborhood where the home is located.
"We do the cost-benefit analysis (for) the investor," said Jeannine Bruin, GMAC's executive director of mortgage communication. "Is he going to recoup any money for us to go through the whole process of foreclosing, fixing the property up, marketing it, selling it? Is anything coming back to that investor? If not, it's best to just let the borrower keep ownership of the home."
But by then, the borrower may think he or she has lost the title and has left.
In that scenario, the neighborhoods and taxpayers may lose, say city officials and neighborhood activists.
"The debtor is gone, the lender is gone and here, Mr. Mayor, you've got this attractive nuisance in your neighborhood," Barrett said. "Then I get a call from my fire department, and they're telling me we've got too many homes that are attractive nuisances, as they say, for arson or prostitution or drug trafficking. The current situation is a lose, lose, lose situation."
Unless the mortgage debt is discharged in court, the debtor may still be on the hook for the loan even though the property is vacant.
"We have a responsibility to make every effort to hold these borrowers responsible for any payments they agree to make," said Joyce Biearman, communications manager at Home Loan Services Inc., a Bank of America subsidiary.
John Pawasaret, director of University of Wisconsin-Milwaukee's Employment & Training Institute, said lenders should shoulder some responsibility since many loans, especially subprime mortgages written on central-city properties, were based on inflated valuations. Many of the loans were known as "liar's loans" because borrowers were not required to document their income on loan applications.
The loan values often "had no relationship to the actual value of the house because of all these liar loans," said Pawasaret, who has studied the impact of foreclosures on Milwaukee neighborhoods.
Bruin, however, said many of the loans in foreclosure today were prime loans written to borrowers who have since hit hard times and saw the values of their properties decline with the overall housing market. She said GMAC may be willing to renegotiate loans with borrowers when they hit troubles.
"It's a sticky situation, no doubt about it," Bruin said. "But I wouldn't go on record saying the lender is responsible for all of these properties in limbo."
'They took everything'
Left to deal with the fallout are individuals like Alton Lewis.
Lewis and his wife, Theresa, raised seven children in the modest home on W. Clarke St. where they've lived since 1967.
Today, their house sits next to a large green monstrosity at 2013 W. Clarke St. The front porch is sagging; there are gaping holes in the roof; every second- and third-floor window is shattered or missing; and the siding on much of the back of the house is gone, leaving the wood frame exposed.
Their son James said he witnessed vandals stealing from the property in broad daylight.
"They took everything," James Lewis said. "I saw guys walking out with sinks and pipes."
Squatters lived in the house for much of the two years that it's been vacant, said Alton Lewis.
"Not only is it an eyesore, but it's dangerous," said Lewis, 72, whose 69-year-old wife is bedridden. "If that house catches fire at night . . . I can't get her out of (here) myself. We both could burn in there. It's bad, it's just unreal."
Some of the siding on the west side of Lewis' home is melted from a fire at the abandoned house on Feb. 23, 2008. There was also a small fire in his neighbor's garbage-strewn backyard in September 2007.
Although a demolition order was issued last year, the building is still standing. It is one of about 80 houses waiting for funding so they could be razed.
Lewis has urged city officials to bulldoze the house and to tell him who owns it.
"They keep telling me some lady," Lewis said. "They say some lady owns it, and they can't get in touch with her."
County records show Latoya Wesley bought the house in 2006 with a subprime mortgage loan. It was one of five properties the Milwaukee woman bought around that time.
Wesley has been hit with repeated foreclosure suits and was on the way to losing title to the Clarke St. property when a foreclosure judgment was issued on Feb. 26, 2007. The property was never sold at a sheriff's sale, however. Just last month, the foreclosure judgment was dismissed.
Wesley said she isn't the owner. "It was foreclosed on," she said. "The bank owns it."
Today, taxpayers are footing the costs for the house, which is being foreclosed on by the city. Wesley owes more than $18,000 in back taxes and fees, city records state. The taxpayer's tab is expected to increase by about $10,000 to $15,000 when the condemned house is demolished.
Living with an eyesore
In Bay View, Linda Yancey and Alan Wood expressed their frustrations with living less than an arm's length from a boarded-up eyesore - the house Lass owns.
Yancey and Wood originally thought of Lass as a good neighbor intent on improving a house that had a history of problems.
Today, sitting in their neatly landscaped backyard, sipping a couple of cans of Milwaukee's Best beer, they look at the house with a measure of disgust.
"I've paid taxes here for 6 1/2 years. It's ridiculous that I have to live next to that," Yancey said, motioning to the boarded-up house that has been home to squatters and scores of animals. "Nobody knows what goes into that building."
Like Lewis, Yancey said she has called City Hall to get the building torn down or to at least find out if Lass is still the owner.
"When you call, it's like there's no answer," she said. "Is it the mortgage company or is it a 'somebody' who owns it?"
The 39-year-old Lass bought the Lincoln Ave. house in June 2006 - about a year and a half after his release from prison, where he had spent about a dozen years for drug dealing. Lass financed the purchase with a $112,500 loan from subprime lending giant Argent Mortgage Co., of California. The mortgage carried an adjustable interest rate between 10.05% and 16.05%.
The house quickly became a money pit. It sprung a gas leak so severe the odor could be smelled throughout the neighborhood. A broken water pipe severely damaged the interior. Tenants weren't paying rent.
In March 2008, German-based Deutsche Bank sued Lass for foreclosure. The bank was acting as a trustee for investors who bought the mortgage. Judge Timothy Dugan issued the foreclosure judgment in May 2008, the same month the city opened a condemnation file on the property.
"I didn't even go to the (foreclosure) hearing," Lass said. "I was like, 'You know what, take the house.' I felt terrible."
In September, the house was auctioned off at a sheriff's sale, with the lender making the highest bid of $108,000. It is common for lenders to buy properties at sheriff's auction.
But the sheriff's deed was never brought back to Dugan for confirmation, meaning Lass remained on the title.
"They own it right up to the time the judge signs the order confirming the sheriff's sale," Dugan said.
Lass said he received a letter from Dugan two months ago telling him the lender was seeking to dismiss the March 2008 foreclosure order. That was Lass' first clue that he was still a homeowner. Even then, he said, he wasn't convinced the house was his.
The foreclosure action has not been completed because repossessing and selling the property "would have not provided enough money to repay any of the outstanding loans and would have only deepened losses," according to a statement from Citigroup Inc., which had serviced Lass' loan.
City records show Lass' delinquent tab to the city: $4,388 for 2008 taxes plus $865 in board-up costs. There is a raze order on the property.
Dugan said the letter to Lass was probably the first time he notified a borrower that a lender was seeking to vacate a foreclosure order. Doyle of Legal Aid has been urging judges to have borrowers notified before a foreclosure order is dropped and to insist that lenders state a reason when they ask for a dismissal.
Several judges say they are doing so, but they point out that they can't force a lender to complete a foreclosure because it may be in the best interest of the community. Dugan recently denied the motion to dismiss the foreclosure in Lass' case, but that doesn't take Lass' name off the title.
"I don't deal with the moral obligations," Dugan said. "I'm on the legal side."
Officials acknowledge they can do little to stop lenders and homeowners from abandoning properties. City officials hope a new ordinance requiring lenders to regularly inspect properties in foreclosure and to notify the city when one becomes abandoned will help them keep tabs on walkaways.
Lass and Wesley are not the only property owners who say they did not know they still held titles.
Building inspectors, bankruptcy lawyers and other officials say they frequently hear the claim.
"It's a common thing for people to say, 'I'm being foreclosed on - goodbye,' " said Jay Unora, an assistant city attorney who prosecutes building-code violations.
"These people are winding up with a lot of headaches."