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Should I be afraid of Zombie Real Estate?

JohnMenszer-0690It happens so often. I ask clients if they own a home and they say, “No, but I am buying one from the bank.” There is a popular misconception that when you are paying a mortgage, you don’t own the property until it is fully paid for. In fact, when you buy a piece of real estate on credit you are owner from the time the ink dries on the paper.

The three essential documents involved in a credit purchase of real estate are: the Act of Transfer, the Note and the Mortgage. The Transfer, also known as the Deed, transfers ownership from the seller to the purchaser. The Note is a statement of the amount the purchaser owes and the terms of repayment. The Mortgage is a security agreement that ties the note to the real estate, giving the lender certain rights over the property. Among those rights is the option to foreclose if the Note becomes delinquent.

Notice, I said “option to foreclose” because here is where the Zombie Real Estate comes in. There are unknown numbers of these foreclosure horrors where it is the bank’s refusal to foreclose which sets the owner down the path to perdition. Zombie Real Estate is property that nobody wants which keeps racking up costs for the owner.

I read of a property owner in Ohio who fell behind to JP Morgan Chase due to ill health. He received a foreclosure suit and proactively moved out before the date of the sheriff sale to live with his daughter. Then the bank quietly dropped the suit. Two years later he started getting bills for taxes, waste removal, weed control, and was threatened with demolition costs.

In depressed markets banks are walking away from properties. If they foreclose they have the legal costs and the expense of keeping up the real estate owned (known in the trade as “REO’s). In not foreclosing the bank can reap accounting and tax benefits from the government and sell the debt at a deep discount to debt collectors, who then hound the owners.

In my practice I once had a case of Zombie Real Estate in a bankruptcy. A client had a piece of investment real estate that he wanted to give back to the lender, as well as a lot of hospital bills and other debts that justified filing a Chapter 7. We filed his case and listed his intention to surrender this property to the bank. Unfortunately, before the lender could foreclose the property was damaged and the lender decided not to foreclose after all. The wrecked property sat for years with the City racking up liens and charges. The Note on the property was discharged in the bankruptcy, but since the City’s liens and charges dated from after the bankruptcy they were fresh obligations to the debtor.

You can’t force a bank to foreclose if it doesn’t want to and you can’t make them accept a donation, a dation or a quitclaim, unless they sign the document. What you own may not be so easy to get rid of.

 

Real Estate Liens and Judgments — How to Cancel Them?

Liens and Judgments that are recorded in the Land Records Division of the Clerk of Court of Orleans Parish are indexed under the names of the parties. They act as clouds on the titles of real estate owned by the parties cast in judgment. Fortunately, there are several ways to cancel them.

Note: Formally, the Land Records Division of Orleans Parish was divided between the Notarial Archives, the Mortgage and the Conveyance offices. Now, all documents in Orleans Parish are filed once, in one place, making Orleans conform to the practices of other Louisianan parishes.

Here are the major ways to cancel a Judgment:

1. Consent of the parties – usually upon payment or settlement of the Judgment balance.

2. Prescription – the effect of recordation ceases 10 years from the date of the Judgment,
unless it is re-inscribed..

3. Order of a Bankruptcy Court – upon motion and hearing the Bankruptcy Court may order the cancellation for a debtor’s lack of equity in the property.

4. Erasure by State Court – usually by a Mandamus proceeding for the failure of the
Clerk to take action.

Here are the major ways to cancel a Mechanics’ Lien:

1. Release by the Lien Filer.

2. Order of the Court in Suit to Compel Release.

3. Prescription if more than a year has passed and no lis pendes (notice of suit) has been filed in Land Records.

Here are the major ways to cancel City Code Enforcement Liens:

1. Consent of the parties – upon payment of the fine, penalty and costs or settlement..

2. Order of the Court – after filing a timely appeal in a lawsuit.

Here is the way to cancel a Federal IRS Lien:

1. Consent of the IRS after notification of prescription or payment.

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