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Requiring lenders to sell after foreclosure would ward off ‘zombie’ properties

Editor’s Note: About a year ago, a Wisconsin Supreme Court decision gave Milwaukee officials reason to believe that they had gained a new weapon in their fight against so-called zombie properties — that is, properties that are vacant, abandoned and in foreclosure.

In Bank of New York Mellon v. Carson, the justices found that the courts have the authority to order a bank or other lender to sell a property after it has been both abandoned by the owner and foreclosed on. Milwaukee officials hailed the decision, asserting that it would prevent houses from sitting vacant and uncared for, sometimes for years, without either the previous owner or mortgage lender willing to take responsibility.

State lawmakers are now considering legislation that critics fear will give away most of the ground recently gained in the fight against zombie properties. Assembly Bill 720 would give mortgage lenders a full year before they had to sell an abandoned residential property. The clock would start ticking following a five-week redemption period — time given to the owner to come up with the money to pay for the property in full.

What’s more, rather than sell a property, a mortgage lender could simply decide to leave the title in the hands of the previous owner, who might be long gone. Heather Hecimovich Hough, an assistant city attorney, argues that it’s better to continue giving cities a strong hand in fighting zombie properties.

By Heather Hecimovich Hough

Heather Hecimovich Hough is an assistant city attorney for the city of Milwaukee. She specializes in litigation concerning "zombie" (vacant and foreclosed) properties and nuisance properties.

Heather Hecimovich Hough is an assistant city attorney for the city of Milwaukee. She specializes in litigation concerning “zombie” (vacant and foreclosed) and nuisance properties.

Foreclosing plaintiffs should be compelled to bring abandoned properties to sale because judicial economy requires it and because failure to do so causes municipalities and taxpayers to suffer adverse, unfair and unjust consequences.

Mortgage lenders seek the court’s assistance when foreclosing by way of order and judgment. To stall a foreclosure or decide after judgment is entered not to pursue the foreclosure to sale is to render the court’s order useless.

If mortgage lenders were compelled to complete a foreclosure action, these lenders would then have to carefully analyze if foreclosure is the best course of action upfront before filing an action with the court. If such analysis were regularly performed before commencing action, fewer properties would be abandoned quite so quickly and fewer foreclosures would weigh on the state’s already strained judicial resources.

A tangible property is attached to a foreclosure proceeding. The consequences of an unexecuted money judgment are limited to the parties in the suit.

An unexecuted foreclosure judgment, on the other hand, significantly affects the community surrounding a tangible property. No other civil action so adversely affects non-parties who do not have a voice in the proceeding or some sort of recourse.

When a mortgage lender fails to bring an abandoned property to sale, the taxpayers and the municipality bear the brunt of such a decision. Abandoned properties in foreclosure limbo can give rise to neighborhood blight.

These properties, neither cared for nor maintained by either party involved in the original real estate transaction, are left to decay and depress property values in the surrounding neighborhood and community. These eyesore properties attract vagrants and thieves (and thus, crime) to a neighborhood.

Windows are boarded up, lawns become overgrown, and property maintenance is not performed. The value of the abandoned property rapidly decreases and, as a result, the value of neighboring properties plummets.

Surrounding homeowners are faced with notably less-marketable properties. Municipalities are forced to maintain and monitor these abandoned properties with taxpayers footing the bill.

Further, valuable municipal resources from real estate tax proceeds are left unpaid. If taxes remain unpaid, the municipality’s last option is to take ownership through tax foreclosure, again at taxpayers’ expense.

A compelled sale significantly reduces the harm. A prompt sale equates to the prompt return of the property to the real estate market.

An invested buyer becomes responsible for the care and maintenance of the property, lifting the burden from the municipality and its taxpayers. Property taxes are paid, generating additional municipal resources.

Blight is reduced and even eradicated once the property becomes inhabited. Compelling mortgage lenders, the most involved and capable party to the foreclosure action, to sell abandoned properties serves the best interests of those who are affected most by abandoned properties — the courts, the community and taxpayers.

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