Some homeowners quickly pack up and move on once they receive a foreclosure notice because they assume the foreclosing bank will take over the property. But 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. (To learn what to do, and what not to do in a foreclosure, read Foreclosure Do's and Don'ts.)
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 canceled, 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 bank 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. Or there may be other reasons that the bank 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.
When the housing crisis began, multitudes of properties went into foreclosure but did not emerge from the process in a reasonable period of time. RealtyTrac reported at one point there were at least than 300,000 zombie properties in the U.S., though the actual number may have been considerably higher because the company that produced the report used a conservative methodology in coming up with its data. As of mid-2014, though, that number had purportedly dropped to around 141,000, but some states still had large numbers of zombie homes. As of 2016, the number of zombie homes in the U.S. was down to 19,187. In 2017, it was 14,312.
States that still have relatively high numbers of zombie properties include Florida, Illinois, Ohio, New York, and New Jersey. One reason that these states have a high number of zombie foreclosures is because of the long foreclosure process in those states. (Learn about foreclosure procedures in Florida, Illinois, Ohio, New York, and New Jersey.) People tend to abandon their property when the process drags on and on. (To learn more about which states have lengthy foreclosure timelines and the factors that influence how long a foreclosure may take, see States With Long Foreclosure Timelines.)
In a zombie foreclosure, because title is not transferred out of the homeowner’s name, he or she still has the legal obligation to pay for certain debts and expenses like 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.)
How zombie foreclosures can hurt homeowners. 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:
Plus, your credit score, which was likely already significantly damaged by the foreclosure process, could be hurt more 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.
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. (Learn when you have to leave your home when it's in 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's 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.