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. Meanwhile, the house languishes and the property's ownership (title) remains in the absent homeowner’s name. These so-called “zombie foreclosures” can lead to some horrifying consequences for the homeowner who's already moved out.

What Is a Zombie Foreclosure and Why Do They Happen?

With a zombie foreclosure, the homeowner moves out expecting to lose the home in a foreclosure, but for some reason, the foreclosure is canceled, the sale is never held, or ownership is never officially transferred to a new person or entity. As a result, the property's title remains in the homeowner’s name.

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, as well as 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 the bank might have other reasons for not following through with the foreclosure, like they already have too much inventory, the costs of foreclosing don't justify completing the foreclosure, or in some cases, maybe the 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. RealtyTrac reported at one point there were 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 in coming up with its data.

But in the third quarter in 2020, according to ATTOM Data Solutions, zombie properties had fallen to just 7,961—though some states and particular zip codes still have large numbers of zombie homes. States that continue to have relatively high rates of zombie properties include Kansas, Missouri, Georgia, Kentucky, and Tennessee. New York has the highest actual number of zombie properties, followed by Florida, Illinois, Ohio, and New Jersey.

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 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 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 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 had already vacated. Because her name was still on title in the property records while her foreclosure was finalized, the city continued fining her.

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 entire neighborhood's value. 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 foreclosure provides another reason for you to remain in your home for as long as possible during a foreclosure. You'll 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 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. 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.