Word: Orphan Houses

Today’s word is “orphan houses”, a new concept and a direct consequence of the dramatic increase in foreclosures across the country. There are numerous ones in your town and we hope your home doesn’t become one.

What’s an “orphan house” anyway? Unfortunately, it is a home which has been lost as a consequence of foreclosure or was voluntarily relinquished by the homeowner via a deed-in-lieu in order to avoid foreclosure. As if that were not bad enough, the insurer has neglected to transfer the title into their name which can cause major problems for the former owner down the road. 

As long as the title remains in the borrower's name, then any and all liability fall upon that borrower—who remains the owner of record. Thus the name “orphan house”, you lost it, and they have chosen not to legally claim it.

Now why would they do that? Obviously you are smart enough to know that when financial institutions do (or fail to do) something it usually is associated with saving them money. The catch this time is liability.  Whomever owns the property (has the title legally recorded in their name) bears the risk or liability for anything which occurs at or on the property.  If there is a fire and the vacant house burns, the insurer does not have a risk, it is NOT in their name. If the local municipality mows the 4 feet high grass and processes a bill for that address, it will have the former borrower name attached to it. (No new deed has been recorded). The homeowner’s association may continue billing in the name of the former borrower (that would be you) and those bills can be attached to the property as liens. 

As a practical matter, if there has been a foreclosure there is a clear date when the ownership rights in the property ended. That is very murky when you mailed off paperwork to process a deed-in-lieu. Lenders are very willing lately to let you walk, complete the simple form and leave the property (within some guidelines of course). I am simply telling you that they are covered, YOU, however, are not.

How do you avoid an “orphan house” in your future? The best advice is to seek legal counsel about the aftermath of a foreclosure or deed-in-lieu. A competent attorney should be able to help you work through the details so you don’t end up with an unpleasant surprise down the road.

Yes, it is definitely worth the legal fee you will incur to avoid possible financial risk down the road.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)