// Workers AI · dad joke modeWhy did the bank walkaway go to therapy? It had a lot of withdrawn issues.
A bank walkaway is a decision by a mortgage lender (a bank) to not foreclose on a defaulted mortgage (when the borrower has ceased to make the payments), or to not complete foreclosure proceedings (to "walk away" from the mortgage). These are sometimes referred to as abandoned foreclosures or stalled foreclosures, though this latter term is also used more broadly when the foreclosure process has stalled for other reasons.[1]
In addition to homes directly owned by a bank, the same phenomenon occurs when the home is part of a mortgage-backed security (MBS), in which case it is the mortgage servicer who has chosen to not foreclose or to cease foreclosure proceedings.[2]
In the United States, bank walkaways became more common following the United States housing bubble and subsequent housing crisis, known as red flag homes.[3]
Definition
[edit]The Government Accountability Office (GAO) defines an abandoned foreclosure as a mortgage that:
- has entered foreclosure,
- the servicer decides to not continue pursuing its interest in a mortgage loan (has stopped the foreclosure proceedings),
- the servicer has charged off the loan (considers it worthless), and
- the home is vacant.
Rationale
[edit]A common reason for a bank walkaway is that the lender determines that the costs associated with foreclosure are likely to exceed the expected proceeds from the sale of the property. Thus, if the bank were to foreclose (taking ownership) and then sell the home, the bank expects that it would lose money, and thus chooses to not do so.[4]
Also, if there are problems with the property which the bank, if it takes possession and thus ownership, might become liable for, the bank might choose not to do so. For example, if a property had chemical contamination, excessive refuse or waste, or environmental damage requiring expensive remediation (such as if it was used for the manufacture of crystal meth or other illegal and/or toxic substances), it might be too expensive to rehabilitate the property or clean it up in order to be able to resell it, and thus the bank might decide to abandon the foreclosure and thus not become owner of the distressed property.
Consequences
[edit]As with other departures from ordinary home ownership or foreclosure, bank walkaways leave homes in a state of limbo – the houses may be vacant and in dilapidated condition, and the ownership and future of the house are unclear.[5][6]
When a home is not foreclosed on, the borrower (generally resident or landlord) is still legally responsible for housing taxes, maintenance, and demolition costs, if the house is condemned.
When neither the borrower nor the lender takes responsibility for a house, the costs may ultimately be borne by local governments.[7]
Prevalence
[edit]United States
[edit]The GAO found that in the period January 2008 to March 2010, mortgage servicers charged off 46,000 properties, with 60 percent of the charge-offs occurring before an initial foreclosure filing was made.[8] In this period, Detroit, Michigan had the highest number of bank walkaways, with Chicago, Illinois being second.[9]
Resolutions
[edit]Possible outcomes include:[10]
- mediation between the lender and the borrower
- dismissal of the foreclosure action
- completion of the foreclosure (the bank takes ownership), but the home not necessarily subsequently sold.
See also
[edit]References
[edit]- ↑ "CFPB Takes Aim at 'Zombie' Foreclosures". American Banker. 2014-03-12. Retrieved 2026-06-04.
- ↑ "Underwater Homes Abandoned By Banks". AOL.com. Archived from the original on 2019-12-09. Retrieved 2026-06-04.
- ↑ Immergluck, Daniel (2011-02-11). Foreclosed. Cornell University Press. ISBN 978-0-8014-5882-8.
- ↑ "Banks Halting Foreclosures to Avoid Upkeep". American Banker. 2013-04-23. Archived from the original on 2020-08-06. Retrieved 2026-06-04.
- ↑ "Should Banks Maintain Abandoned Properties?". NPR.org. Archived from the original on 2012-05-06. Retrieved 2026-06-04.
- ↑ "Foreclosures fuel Detroit blight, cost city $500 million". The Detroit News. Archived from the original on 2021-05-10. Retrieved 2026-06-04.
- ↑ Han, Hye-Sung (2014-04-03). "The Impact of Abandoned Properties on Nearby Property Values". Housing Policy Debate. 24 (2): 311–334. ISSN 1051-1482.
- ↑ Gerrity, Michael (2025-08-21). "Zombie Foreclosures Edge Up Across U.S." World Property Journal. Archived from the original on 2026-02-15. Retrieved 2026-06-04.
- ↑ "Report Details How Subprime Lending, Foreclosures Hurt Detroit". www.cbsnews.com. 2015-06-25. Retrieved 2026-06-04.
- ↑ "Communities Fight Back After Banks Walk Away". www.aol.com. Archived from the original on 2021-12-05. Retrieved 2026-06-04.
Further reading
[edit]- Saulny, Susan (2009-03-30). "Banks Starting to Walk Away on Foreclosures". The New York Times. ISSN 0362-4331. Retrieved 2011-06-28.
- Podmolik, Mary Ellen (January 13, 2011). "More banks walking away from homes, adding to housing crisis". The Chicago Tribune.
- Mortgage Foreclosures: Additional Mortgage Servicer Actions Could Help Reduce the Frequency and Impact of Abandoned Foreclosures, vol. GAO-11-93, Washington, D.C.: United States Government Accountability Office, November 15, 2010
- Geoff Smith & Sarah Duda (2011-01-12), Left Behind: Troubled Foreclosed Properties and Servicer Accountability in Chicago, Woodstock Institute, archived from the original on 2011-08-09, retrieved 2011-06-28
- Michael Schramm; April Hirsh; Diwakar Vadapalli; Daniel J. Van Grol; Krista Moine Nelson; Claudia Coulton, Stalling the Foreclosure Process: The Complexity Behind Bank Walkaways (PDF), Cleveland, Ohio: Center on Urban Poverty and Community Development, Mandel School of Applied Social Sciences, Center for Social Justice, School of Law, Case Western Reserve University
