Section 363(f) of the Bankruptcy Code provides an effective way to kill off a zombie mortgage through a free and clear sale of a vacant home.
Bankruptcy Weapons to Terminate a Zombie Mortgage
Professor Andrea Boyack* and Judge Robert Berger**
After receiving notice from JP Morgan Chase in 2008 that foreclosure was imminent, homeowner Joseph Keller vacated his home, moved to a new residence, and tried to pick up the pieces and start again.1 Two years after he had relocated, however, the county sued Keller because his house, “already picked clean by scavengers,” was in violation of the housing code. Upon returning to investigate, Keller found his former home “in  shambles,” with “hanging gutters and collapsed garage.”2 Keller also discovered that he owed back taxes, sewer fees, as well as bills for municipal weed and waste removal. Furthermore, he remained personally liable on the Chase mortgage loan, the debt having grown from $62,000 to $84,000 because of two years of unpaid interest, penalties, and fees. Adding insult to injury, the Social Security Administration rejected his disability application because the vacant, crumbling home he still unwittingly owned was a valuable “asset.” Chase had dismissed the foreclosure judgment two months after Kelley had moved out, but somehow Kelley was never informed.3
In 2012, Marlon Sheafe was sentenced to probation and faced jail time based on failure to maintain a home that he had abandoned and had presumed was foreclosed upon back in 2008.4 Sheafe, struggling with the symptoms of advanced cancer, started visiting the abandoned home weekly to mow the lawn and attempt to rehabilitate the property that was plagued by “cracked steps, shredded siding, weeds as tall as the door.”5 The Cleveland Housing Court had cited Sheafe for building code infractions on the property even though he did not know that he still owned it. During the four years after Sheafe’s abandonment, “[l]ooters had stripped the place bare, and ‘dope boys’ had left their sneakers on the porch and their empty cans of sausages strewn about inside.”6 Sheafe eventually convinced the bank to release its lien and tried to donate the home to a land bank, but by that time, the county had sold its tax lien to a debt collector who brought suit for foreclosure. This second foreclosure still pending, Sheafe faced thousands of dollars in code violations and court costs and risked owing $10,000 in fees to the county if it ordered the home to be demolished because of blight.7