Zombie foreclosures happen when a homeowner leaves their home after being notified of a foreclosure but before the lender completes the process. When zombie foreclosures happen, the homeowner is still on the hook for taxes and fees on the home. This is why you want to avoid a zombie foreclosure and stay in your home until the lender completes the foreclosure process and you're relieved of these financial obligations.
Written by Natasha Wiebusch, J.D..
Updated September 22, 2021
People always say, “it’s not over until it’s over.” When it comes to foreclosures, this couldn’t be more accurate. Even if there’s no way to stop a foreclosure, you’re still financially on the hook for the house until your lender completes the foreclosure process. And if you leave the house but the lender never actually finishes the foreclosure, your home will turn into a zombie foreclosure. In this article, we’ll cover what a zombie foreclosure is and why you should avoid it.
What Is a Zombie Foreclosure?
Zombie foreclosures are created when you abandon the home after you receive notice of foreclosure from the lender that holds your mortgage, but the lender never completes the foreclosure process.
How Zombie Foreclosures Are Created
Zombie foreclosures start like any other foreclosure. A homeowner receives a foreclosure notice from their mortgage lender. The homeowner, realizing they won’t be able to keep the house, decides to accept this fate and moves out of the house during the pre-foreclosure process.
This may seem like a completely normal reaction for homeowners who prefer to move on sooner rather than later. But what most people don’t realize is that in matters of real estate, whoever holds the title to the real estate still owns it. When a borrower still holds the title to a zombie property, they have what you might call a zombie title.
Since the homeowner still holds the property’s title, they’re still financially responsible for the property until the foreclosure is complete. In the case of a zombie foreclosure, for whatever reason, the lender never completes the foreclosure process and the home is never sold. And, although the homeowner is no longer present, they’re still responsible for the property. When these two things happen, a zombie property is born.
There are many reasons the lender may abandon the foreclosure process. The most likely reason is that the lender decided that it’s too expensive to pay for repairs and upkeep, or the property might be drowning in back property taxes. Foreclosure properties are often difficult to sell, and it may be that the lender decides that selling the home won’t provide enough money to cover the costs. Broadly speaking, if a lender decides it’s just not worth the effort, they will not complete the foreclosure proceedings.
If you’ve just received notice of the foreclosure, it’s important to be aware that this can happen to you. Just because pre-foreclosure proceedings have begun doesn’t mean that the mortgage lender will actually complete the process. Until they do, you’re still on the hook for the mortgage.
Lenders don’t have to notify homeowners that the foreclosure has stopped.
Unfortunately, if you leave a property while it’s in pre-foreclosure, lenders have no legal obligation to inform you that they didn’t follow through with the foreclosure even though you still own and are financially responsible for the house. In some cases, lenders will try to contact a homeowner, but often they can’t locate them because they vacated quickly and left no contact information.
Because the property is abandoned, it usually remains unoccupied and falls into disrepair. It’s called a zombie foreclosure or zombie property because the property is in limbo: It’s “dead” and continues to decay and grow more unsightly as time goes by, but it continues on, unoccupied.
During the last foreclosure crisis, which occurred after the 2008 housing bubble burst, many thousands of foreclosures that lenders initiated became zombie foreclosures. At one point in 2013, RealtyTrac reported at least 300,000 zombie foreclosures in the U.S. That number has dropped drastically since then.
Although the number of zombie foreclosures increased between the first and second quarter of 2021, ATTOM Data Solutions’ zombie foreclosure report counted (conservatively) just over 8,000 zombie properties in the U.S. in the second quarter. A strong housing market means fewer zombie properties. The second quarter of 2021 shows that the market has improved significantly since 2013, but the slight increase has many wondering how the pandemic will impact the housing market and foreclosures.
What Are the Effects of Zombie Properties?
Zombie foreclosures are bad for everyone involved. They can continue to negatively impact original homeowners, and they can also take a toll on the surrounding neighborhoods. Below are a few ways in which a zombie foreclosure impacts those involved.
The Original Homeowners Can Be Haunted by Their Zombie Homes Long After They’ve Vacated Them
If you’re still listed as the original homeowner on the property’s title, you can be held legally responsible for taxes, fees, dues, and fines.
First, you will still be responsible for the property taxes on the house. These property taxes can build up over time, and the city can sue you to collect on these taxes. If you’re not sure whether you owe taxes, you can either take a look at your taxes or contact your local county assessor’s office.
Second, many properties are located in areas controlled by a homeowner association (HOA). In these areas, homeowners typically have to pay HOA dues. If the zombie foreclosure that you’re responsible for is in an HOA-controlled area, it’s still subject to those dues, and you’ll be responsible for paying them. If you don’t pay them, the association can file a lawsuit against you to recover unpaid assessments.
Lastly, the local government can bill you for yard maintenance, repairs, trash removal, and more. They can also impose fines on the property for not complying with housing codes, zoning laws, or municipal ordinances. Just like the HOA dues, you’ll be financially responsible for these fines.
Unpaid fees can end up on your credit report.
Unfortunately, if any of these dues, fees, or fines go unpaid, they can end up on your credit report. Because credit reports are used to calculate credit scores, unpaid bills will negatively impact your credit score. A low credit score can make it practically impossible for you to buy a new home for many years. Low credit scores can also prevent you from securing other kinds of loans, like car loans.
Abandoned Homes Can Bring Down Property Values.
Zombie homes also have a negative impact on the surrounding neighborhood. After a while, people begin to notice that the house is abandoned, which can then attract squatters and other individuals who would like to use the house. The house could fall victim to vandalism, and people may begin to use the house to sell drugs or carry out other crimes. This type of behavior is common in a vacant property because people know they’re unlikely to be caught in a house that nobody is looking after.
Abandoned properties in disrepair also become eyesores in the neighborhood. This can drive potential homebuyers away from purchasing residential properties in that neighborhood and cause local property values to go down.
Zombie foreclosures can have a serious negative impact on your finances. Of course, the best-case scenario for a homeowner is to avoid foreclosure altogether by making mortgage payments on time. But we understand that this isn’t always possible. If you default on the mortgage and know foreclosure on your mortgage is coming, stay in your home through the pre-foreclosure and foreclosure process until you receive an official notice to vacate.
Also, before your leave, confirm with your county recorder’s office that the title has been transferred out of your name after the foreclosure sale. This way, you’ll know whether you’re still financially responsible for the home.
The foreclosure process is stressful, but help is available. If you’re feeling overwhelmed, use the resources available to you.