Abandoned Foreclosures

http://www.gao.gov/new.items/d1193.pdf

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 study revealed that 20 specific areas of the country accounted for 61 percent of the estimated “bank walkaway” cases, with certain cities in Michigan, Ohio, and Florida experiencing the most occurrences. Detroit topped the list.


GAO also found that abandoned foreclosures most frequently involved loans to borrowers with lower quality credit, or nonprime loans, and low-value properties in economically distressed areas.


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.
Vacant homes associated with abandoned foreclosures can contribute to increased crime and decreased neighborhood property values, the agency notes. Abandoned foreclosures also increase costs for local governments that must maintain or demolish the homes.


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.