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.
With a zombie foreclosure, the homeowner moves out after a 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. (To learn what to do, and what not to do in a foreclosure, read Foreclosure Do's and Don'ts.)
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. 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 simply wash its hands of the property. Or there could 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 don't 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 amount of time. RealtyTrac reported at one point there were at least than 300,000 zombie properties in the U.S. (Though, the actual number might have been considerably higher because a conservative methodology was used in coming up with its data.) But by the end of 2019, zombie properties had fallen to just 2.96% of homes in foreclosure—though some states and particular zip codes still have large numbers of zombie homes.
States that continue to have relatively high numbers of zombie properties include Kansas, Oregon, Montana, Maine, and New Mexico, as well as Washington, D.C. The state of New York had the highest actual number of zombie properties, followed by Florida.
States with the fewest zombie homes include North Dakota, Arkansas, Idaho, Colorado, and Delaware.
In a zombie foreclosure, because title is not transferred out of the homeowner’s name, the homeowner 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 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.)
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.
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 foreclosure 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.)
To make sure you aren't the victim of a zombie foreclosure, it's a good idea to confirm that title has been transferred after the bank holds a foreclosure sale. 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; an online search tool might be available that you can use to find out which documents have been recorded.