Zombie Foreclosure

Zombie foreclosure is a situation that occurs when a home is left vacant by homeowners who incorrectly believe they have to immediately move out after receiving a foreclosure notice, thinking that the foreclosing lender is now responsible for the property. If the lender doesn't complete the foreclosure process and sell the home, no one is occupying or caring for the property, so the vacant property often falls into disrepair, creating safety concerns and resulting in an appearance that may lower property values in the surrounding community. A home left vacant for this reason is also known as a zombie foreclosure.

Zombie foreclosure results from misunderstanding of the foreclosure process by homeowners. During a normal foreclosure process, the homeowners receive notice from the institution holding the defaulted mortgage that the house is entering the foreclosure process. After this notice there is a mandated waiting period during which the homeowners could pull the house out of foreclosure by paying a large lump sum of money, which may range from a few back payments to the total amount they are in arrears to the full balance of the mortgage. If the homeowners do not pay this lump sum, the process continues and the court rules that the house belongs to the lender. It is only after this point, when the house legally becomes the property of the lender, that the homeowners are required to vacate the property. Until a foreclosure goes through, the homeowner continues to hold the title to the property.

When the title of a home in zombie foreclosure remains in the name of the original homeowner, who is often not aware that the foreclosure wasn't completed, it is known as a zombie title.

Zombie foreclosure escalates a bad situation, default on a mortgage, and makes it a problem for the entire neighborhood, not just the homeowner. A homeowner who leaves a property upon receipt of a notice of foreclosure is abandoning the property without understanding the legal and financial ramifications. The owner of a zombie foreclosure is likely still responsible for maintenance, upkeep, Homeowners Association (HOA) fees and property taxes. These requirements do not end just because they have abandoned the home. Eventually, local authorities could attempt to recover unpaid taxes or fees, or charge the owner expenses for maintenance. To protect against the effects of a home falling into zombie foreclosure, homeowners should stay in the residence until an official notice to vacate arrives. Then, they should follow up to be sure that the title of the property is no longer in their name.