The Government Accountability Office (GAO) has just completed a study of what is called “bank walkaways” – that’s when a lender initiates foreclosure proceedings but then decides not to complete the process because the cost outweighs the expected proceeds from the property’s sale.
Officials argue that the practice intensifies deteriorating market conditions and complicates stabilization efforts. However, the agency found that abandoned foreclosures are rare. GAO estimated that the number of abandoned foreclosures that occurred in the United States between January 2008 and March 2010 was between 14,500 and 34,600 — representing less than 1 percent of vacant homes.
The decision to forego foreclosure typically hinges on how much the lender expects to bring in from the subsequent sale of the repossessed property. However, GAO says it found that most of the servicers interviewed were not always obtaining updated property valuations before initiating foreclosure.
GAO learned that because servicers are not required to notify borrowers and communities when they decide to abandon a foreclosure, homeowners are sometimes unaware that they still own the home and are responsible for paying the debt and taxes and maintaining the property. Communities are also delayed in taking action to mitigate the effects of a vacant property.
“Fewer abandoned foreclosures would likely occur if servicers were required to obtain updated valuations for lower-value properties or those in areas that were more likely to experience large declines in value,” GAO said in its report.
GAO recommends that the Federal Reserve and Office of the Comptroller of the Currency require servicers they oversee to notify borrowers and communities when foreclosures are halted and to obtain updated valuations for selected properties before initiating foreclosure.