A zombie foreclosure happens when homeowners, who have defaulted on their mortgage, leave their property under the mistaken belief that they need to vacate immediately after receiving a foreclosure notice, or they abandon the property for other reasons. This often leads to the homeowner unknowingly retaining the title as the lender may not complete the foreclosure process.
For example, consider a homeowner who defaults on their mortgage and vacates the property. If the lender does not finalize the foreclosure, the title remains with the original homeowner. Over time, the vacant property becomes neglected and can fall into disrepair, negatively impacting surrounding property values and creating safety concerns within the community.
Key Points to Remember
- Misconception About Moving Out: Homeowners mistakenly move out after a foreclosure notice, believing they must leave immediately.
- Continued Responsibility: The homeowner retains the title and is responsible for property maintenance until the foreclosure is fully processed.
- Community Impact: Vacant and unattended homes can lower neighborhood property values and create safety issues.
- Economic Crises: Zombie foreclosures were widespread during the 2008 financial crisis, significantly affecting the housing market nationwide.
How a Zombie Foreclosure Happens
Zombie foreclosures stem from a misunderstanding of the foreclosure process. Typically, after receiving a foreclosure notice, homeowners might assume they need to leave immediately, not knowing that they still hold the property title during the legally mandated waiting period. During this time, they have the option to rectify the situation by paying overdue amounts or the full mortgage balance.
The title does not transfer to the lender until the home is officially foreclosed. Once the court rules in favor of the lender, only then does the house legally become the lender’s property. In Q4 of 2020, zombie foreclosures constituted 3.8% of all foreclosures, according to ATTOM Data Solutions.
Why Lenders Might Delay: Some lenders may defer completing foreclosures due to the high costs of repairs and back property taxes, leaving homeowners in limbo with what is termed a “zombie title.”
How Zombie Foreclosures Impact Homeowners
Zombie foreclosures can exacerbate an already difficult situation. Homeowners thinking they need to leave immediately upon receiving a foreclosure notice might abandon their home without understanding the legal repercussions. Yet, they remain responsible for property maintenance, HOA fees, and taxes.
Failing to manage these responsibilities can lead local authorities to impose penalties to retrieve unpaid dues or charge for maintenance. Homeowners facing foreclosure should remain in their residence until they receive an official vacate notice and confirm the title is no longer in their name.
What Does “Zombie Foreclosure” Mean?
A zombie foreclosure occurs when a homeowner leaves a property before it is legally necessary, causing potential deterioration without their immediate knowledge. Until foreclosure completion, the homeowner is responsible for property-associated costs.
Will a Zombie Foreclosure Impact My Credit?
Defaulting on a mortgage through a zombie foreclosure will adversely affect your credit score as you walk away from your mortgage obligations.
Where Are Zombie Foreclosures Most Common?
Zombie foreclosures can occur in any state but are predominantly found in lower-income communities. According to ATTOM Data Solutions, the Midwest and Northeast regions have shown higher instances of zombie foreclosures in Q1 2022.
Why Are They Called Zombie Foreclosures?
The term “zombie foreclosure” is used because the property remains in legal limbo—still owned by the homeowner in title but essentially abandoned. Like a ‘zombie,’ it is neither fully alive (under the homeowner’s management) nor fully ‘dead’ (reclaimed by the lender), causing it to fall into neglect and disrepair.
Related Terms: foreclosure, defaulted mortgage, abandoned property, zombie title, homeowners association.
References
- ATTOM Data Solutions. “Vacant Zombie Properties Diminish Across U.S. As Foreclosure Moratorium Remains in Effect in Fourth Quarter of 2020”.
- Urban Institute. “State and Local Finance Initiative”.
- ATTOM Data Solutions. “Vacant Zombie Properties Inch Down Again In First Quarter Of 2022 Even As Foreclosure Activity Rises”.
