Zombie Foreclosures

Some homeowners quickly pack up and move on once they receive a foreclosure notice because they assume the lender will take over the property. However, in some cases, the bank doesn’t finish the process. Meanwhile, the home languishes while title remains in the absent homeowner’s name. These “zombie foreclosures” can lead to some horrifying consequences for homeowners. Read on to learn more about zombie foreclosures and the harmful effects they can have on homeowners.

What Is a Zombie Foreclosure and Why Do They Occur?

With a “zombie foreclosure” (sometimes called “zombie title” or “zombie properties”), the homeowner moves out after foreclosure has been started, but for some reason the foreclosure is cancelled, the sale is never held, or title is never officially transferred to a new owner. As a result, title remains in the homeowner’s name.

Often, zombie foreclosures occur in low-income areas where the lender is not anxious to assume responsibility for the upkeep of the property and wants to save on taxes, as well as other costs. If squatters occupy the property or it falls into severe disrepair, the bank may simply wash its hands of the property.

In other cases, the property may have been caught up in the robo-signing scandal (learn about the robosigning scandal) and the foreclosure cannot be completed. Or there may be other reasons that the lender simply doesn’t follow through with the foreclosure, such as they already have too much inventory, the costs of foreclosing do not justify completing the foreclosure, or in some cases, maybe the paperwork was simply lost.

Thousands of Zombie Foreclosures Haunt the U.S.

Various sources estimate that since the housing crisis began there are roughly two million properties that went into foreclosure but never emerged from the process. In about half of those cases the homeowners are struggling to keep the home. But just how many of the remaining million are zombie foreclosures is anybody’s guess.

One recent report indicates there are at least than 300,000 zombie properties in the U.S., though the actual number is probably considerably higher since the company that produced the report (RealtyTrac) used a conservative methodology in coming up with its data.

According to RealtyTrac, the states with the highest percentage of zombie properties are Indiana, Nevada, Georgia, Florida, Maryland, and Arizona. One reason that states such as Florida have a high number of zombie foreclosures is because of the long foreclosure process in that state. People tend to abandon their property when the process drags on and on. (For example, it takes 893 days on average to complete a foreclosure in Florida. To learn about the specific foreclosure laws in Florida, see our Summary of Florida’s Foreclosure Laws.)

To learn more about which other states have lengthy foreclosure timelines and the factors that influence how long a foreclosure may take, see States With Long Foreclosure Timelines.

Zombie Foreclosures Cause Homeowners to Suffer

Since title is never transferred out of the homeowner’s name, he or she still has the legal obligation to pay for certain debts and expenses such as property taxes, HOA dues, and maintenance on the property. Debts associated with these responsibilities can go unpaid for years and then come back to haunt homeowners who have no idea that the foreclosure process was never completed. (In some cases, the bank may not be legally required to inform the homeowner that the foreclosure has stopped or it may not be able to locate a homeowner who has moved out.)

For example, if you leave your property and title is never transferred out of your name, the following things, among others, could happen months or even years later:

• the tax collector may come looking to collect back property taxes
• an HOA may file a lawsuit to recover unpaid assessments
• you could be threatened with fines for not complying with housing codes and ordinances (and even face jail time in some instances if you don’t meet repair deadlines), or
• the local government may send you a bill for yard maintenance, repairs, trash removal, and/or graffiti scrubbing.

Plus, your credit score, which was already damaged by the foreclosure process, will be even worse due to the unpaid debt.

Zombie foreclosures also harm neighborhoods. When properties are vacant and show obvious signs of neglect, it can drag down the value of the entire neighborhood. These unattended homes are also susceptible to vandalism, squatters, and crime.

Another Good Reason to Stay in Your House as Long as Possible

The possibility of a zombie property provides yet another reason for you to remain in your home for as long as possible during a foreclosure. You will be much more likely to avoid becoming the victim of a zombie foreclosure if you stay through the entire process and wait for an official notice to vacate before moving out.

(To read about another reason to stay in your property during foreclosure, see How Foreclosure Can Help You Save Money.)

It is also recommended that you confirm title has been transferred. To do this, go to the county recorder's office in which the property is located to make sure a new deed has been recorded. You can also check your local county recorder’s website. Sometimes there is an online search tool you can use to find out which documents have been recorded.