In the first situation, the homeowner inherited the property from her deceased father in 2008. The property was conveyed to her and the estate was closed. She contacted a Realtor to list it for sale and a buyer was found. The title company discovered that there were two open mortgages of record. No payments have been made in over 4 years, but neither lender attempted to foreclose.
The first mortgage was a business loan to the decedent's wife. The decedent offered his home as additional collateral for the loan. Sometime before his death, the wife's business failed and the lender foreclosed on the business property, but not this one. The two divorced and the ex-wife is out of the picture now.
When the title company called for a payoff, the lender indicated that they had charged-off the remaining balance. However, they didn't release the lien. They are currently investigating the matter.
The second mortgagee has never attempted foreclosure, either; probably because they appear to be in second place and wouldn't get paid from the proceeds.
Most likely, if this property is going to be sold, both will want to be paid something and it will probably be more than the property is worth at this point. This one is stuck in limbo, waiting for the first lender to provide a payoff, or release their lien. This may turn into a short sale, if everyone can agree.
In the second situation, the homeowner filed for bankruptcy. The lender filed a foreclosure and got a default judgment. They took it all the way to sheriff's sale. Unfortunately, it didn't sell for "lack of bidders." Rather than try again, the lender simply dismissed the case. This was also in 2008.
The home had been vandalized and is practically worthless. After re-establishing her credit, this homeowner tried to buy another house. The new lender turned her down - not because her credit was not good enough, but because she still owns this house. They informed her that they won't be able to loan her money until at least 3 years after this house is sold.
She was shocked to learn that she still owned it. She was served with a copy of the decree of foreclosure, and assumed it was all over with, 4 years ago. Nobody told her that the home didn't sell, or that the case had simply been dismissed, leaving her with title to the house that she thought she lost a long time ago.
When she called the lender, they told her to sell it... but, of course, they didn't release their lien, either.
In both of these cases, the homeowners do not want the houses. And, they cannot sell them. What is the owner to do when the lenders do not foreclose... even after several years of no payments?
I think there should be an inverse foreclosure process that would allow the owners to initiate the foreclosure. I envision a statutory inverse foreclosure statute that would allow the owner to recover the costs incurred in bringing the foreclosure, including their attorney fees, from the proceeds of the sale before the lenders are paid on their liens.
It is strange to think that a homeowner would want to foreclose on themselves. However, these properties both need to be sold free and clear of liens. A foreclosure is the best way to do it. Unfortunately, if the lenders won't foreclose the owners don't have many options to get rid of the properties and move on with their lives.
I can think of a couple of other ways to handle the situation. But the alternatives seem to have other drawbacks. I thought I would open this up for discussion. There is more than one way to skin a cat... as they say. Anyone have any ideas, while I wait for the legislature to pass new laws allowing the homeowner to foreclose on their own property?