You Can't Lock the Doors! Are Lenders Powerless to Stop Zombie Properties in Lien Theory States?

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Abstract

In Jordan v. Nationstar Mortgage, the Washington Supreme Court effectively eliminated a lender’s ability to change the lock on a house after a borrower has defaulted on a loan – even to secure and protect the lender’s interest in the property – regardless of whether such limited entry is contractually permissible or whether the property is vacant. The case represents “a significant development in the law of Washington,” and may reverberate to the many states with lien theory statutes like Washington’s. Jordan may have the unintended consequence of harming lenders, borrowers and neighborhoods by furthering blight, increasing crime, devaluing property and preventing lenders from maintaining vacant and deteriorating homes. This article analyzes the Jordan case, and looks at how other jurisdictions handle vacant houses in default. Ultimately, the author rejects the court’s reasoning, generally agrees with the dissent’s analysis and advocates for legislative fixes that leave defaulting property owners the right to possess their property after default and prior to foreclosure, while allowing the lender to protect its interest in vacated property and to curb the proliferation of zombie properties.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3014796

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