By: Lance T. Denha, Esq.
Foreclosures recorded by Fannie Mae peaked in late 2010, but an inventory of long-vacant homes with broken or boarded-up windows, peeling paint, overgrown bushes, gangly weeds, and stacks of trash persists.
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.
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.
In other cases, the property may have been caught up in the robo-signing 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.
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.
It is highly advisable to deal directly with the lender or through counsel in order to work out an arrangement of some sort to ensure you as a homeowner are alleviated from any future obligation or debt associated with your pending foreclosure. Options such as Deed In Lieu of Foreclosures, Short Sale or even Cash-for-Keys will properly transfer back to the lender and allow you to move forward without any lingering issues.