Zombie Foreclosures

Sometimes, homeowners quickly pack up and move on once they receive a foreclosure notice. Perhaps they assume the foreclosing bank will take over the property right away, or maybe they just want to move on with their lives.

But now and again, the bank doesn't finish the foreclosure process. For some reason, the foreclosure is canceled, a foreclosure sale is never held, or ownership is never officially transferred to a new person or entity.

Meanwhile, the house languishes, and the property's ownership (title) remains in the absent homeowner's name. This type of situation is commonly called a "zombie foreclosure," and can lead to some pretty horrifying consequences for a homeowner who's already moved out.

How Zombie Foreclosures Cause Homeowners to Suffer

In a zombie foreclosure, because the home's title isn't transferred out of the homeowner's name, the homeowner still has the legal obligation to pay 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 people who have no idea that the foreclosure process was never completed.

The bank might not even be legally required to inform the homeowner that the foreclosure has stopped, or it might not be able to locate someone who has moved out.

How Zombie Foreclosures Can Hurt Homeowners

If you fall behind in mortgage payments and leave your property, but the home's title is never transferred out of your name, the following things, among others, could happen months or even years later.

• The tax collector might come looking to collect back property taxes.
• An HOA could file a lawsuit to recover unpaid assessments.
• The local government might send you a bill for yard maintenance, repairs, trash removal, or graffiti scrubbing.
• You might be charged fines for not complying with housing codes and municipal ordinances. For example, one homeowner in ­Dune­din, Florida, faced fines of over $100,000 for overgrown vegetation and a stagnant swimming pool at a house she already vacated. Because her name was still on the home's title in the property records while her foreclosure was finalized, the city continued fining her.

Zombie Foreclosures Also Harm Neighborhoods

When vacant properties show obvious neglect, it can drag down the entire neighborhood's value. These unattended homes are also susceptible to vandalism, squatters, and crime.

Where and Why Do Zombie Foreclosures Happen?

Often, zombie foreclosures occur in low-income areas where the bank isn't anxious to assume responsibility for the upkeep of the property and wants to save on taxes and other costs. Other times, the process stalls due to servicer error or another reason. For instance, if squatters occupy the property or it falls into severe disrepair, the bank might wash its hands of the property.

Or a bank might have other reasons for not following through with a foreclosure like it already has too much inventory, the costs of foreclosing don't justify completing the foreclosure, or in some cases, maybe the foreclosure paperwork was simply lost.

An Improved Housing Market Means Fewer Zombie Foreclosures

During the last foreclosure crisis, which peaked in 2010, multitudes of properties went into foreclosure, with thousands being zombie foreclosures. At one point, RealtyTrac reported at least 300,000 zombie properties in the United States. Though, the actual number might have been considerably higher because a conservative methodology was used to come up with its data.

But in the third quarter of 2022, according to ATTOM Data Solutions, just 7,707 vacant residential properties were facing possible foreclosure—although some states (and particular zip codes) still have relatively large numbers of zombie homes, like Pennsylvania, Georgia, California, New York, Texas, Ohio, Michigan, Illinois, North Carolina, and Florida.

Avoiding a Zombie Problem: Another Good Reason to Stay in Your House as Long as Possible

The possibility of a zombie foreclosure provides another reason for you to remain in your home for as long as possible during a foreclosure. You're 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 make sure you aren't the victim of a zombie foreclosure, it's a good idea to confirm that title has been transferred out of your name following a foreclosure sale. Don't leave the property until that happens.

Go to the county recorder's office where the property is located to make sure a new deed has been recorded. You can also check your local county recorder's website; an online search tool might be available for finding out this information. If you need help finding out the status of a foreclosure, consider talking to a local foreclosure lawyer.