A huge problem for HOA and condo associations over the past 5 years has been “zombie foreclosures.” That’s where a bank starts the foreclosure process on a property and the owner moves out, but then the bank doesn’t complete the foreclosure (no state law requires banks to complete foreclosure within a timeframe). We have seen properties where the bank has taken years to complete foreclosure! Because the home is unoccupied, the lot or unit falls into disrepair and the yard goes wild. While the owner is gone, the bank doesn’t yet own the property, so there is no one for the association to approach about the problem. Community associations typically have no right to enter the property and physically fix things as they do not own the property. (And for that matter, should they, since that would be using other owners’ dues to improve someone’s private property?)
The result is that the zombie property falls apart, income to the association goes down (due to neither the owner nor the bank paying assessments), other owners’ assessments go up (to cover the lost dues) or association services are reduced, and all property values fall due to the neighborhood eyesore that no one wants to live near.
Nationally one in every five homes in foreclosure is a bank zombie property. According to the Business Journal, last year North Carolina ranked 10th in the country in number of zombie foreclosures. Charlotte, Greensboro and Raleigh saw some of the largest increases in 2015 for zombie foreclosures in the country. Interestingly, I know of no state legislator really trying to address this ghastly situation for associations and other owners, which could likely be solved by requiring foreclosures to be completed within some reasonable time.
We lawyers have tried everything, but have pretty much had our hands tied as to zombie foreclosures. After all, if neither the owner nor the foreclosing bank is touchable, what does the association do? Lawsuits brought by attorneys to require banks to complete foreclosure typically fail, because there is no state statute requiring that.
Well maybe the new CFPB regulations may help. As you may know from our past blasts and seminars, the Consumer Financial Protection Bureau (CFPB) and issues surrounding Non-Public Private Information (NPPI) as to owner finances have become highly regulated. The CFPB provides that private information in the way of “personally identifiable data” needs to be protected, and there are high fines for violations. One of our Charlotte attorneys has been an expert on the CFPB for years and regularly speaks to lawyers and other professionals on the new requirements and best practices.
The Community Associations Institute (CAI) has now posted information online that CFPB regulations may be of help in the fight against zombie foreclosures. That’s because the CFPB has built-in protections for homeowners when dealing with banks and other financial providers. Those protections may also be available to community associations. Without getting even more complicated here, any property that has a mortgage backed by mortgage servicers Fannie Mae or Freddie Mac must provide timely service and expedite foreclosure proceedings to the greatest extent under applicable law.
If you have a zombie property in the neighborhood and other approaches have not worked, you may want to consider filing a complaint about the property with the CFPB. Any filed complaints get submitted to the CFPB, the CFPB then forwards the complaint to the problem financial institution, and all of the information is public and could influence congressional action. It’s too early to know if this new attack on bank zombie foreclosures will succeed, but there’s little to lose. So consider filing a CFPB complaint. And in the event you need any help, contact one of the attorneys at our firm.