What Is a Zombie Foreclosure?
Let me explain what a zombie foreclosure is. It happens when a home gets left vacant by homeowners who've defaulted on their mortgage. They might incorrectly believe they have to move out right after getting a foreclosure notice, or they choose to abandon the property for other reasons. More often, it's the first case, where the owner thinks the lender is now responsible, even though you, as the homeowner, still hold the title.
Take this example: You default on your mortgage, vacate the property, but the lender doesn't finish the foreclosure. The title stays in your name. The place sits empty for a long time, with no one caring for the lawn or driveway. It falls into disrepair, posing safety risks and potentially dropping property values in the neighborhood.
Key Takeaways
Zombie foreclosure means you abandon your property after defaulting on your mortgage and getting a foreclosure notice, mistakenly thinking you need to leave right away. You continue to hold the title and are responsible for upkeep until the foreclosure is complete. This can cause problems for the whole neighborhood, as a vacant, neglected house lowers property values. Back during the 2008 financial crisis, which hit the housing market hard, zombie properties were common across the U.S.
How a Zombie Foreclosure Works
Zombie foreclosures stem from your misunderstanding of the foreclosure process. In a typical foreclosure, the lender notifies you that the house is entering foreclosure after you default.
After that notice, there's a waiting period where you can stop the foreclosure by paying a lump sum. This could be a few back payments, all arrears, or the full mortgage balance.
Until the foreclosure is finalized, you hold the title. If you don't pay, the process goes on, and a court rules the house belongs to the lender. Only then do you legally have to vacate.
Here's a fast fact: In Q4 2020, zombie foreclosures made up 3.8% of all foreclosures, but they've dropped by more than half since 2016, per ATTOM Data Solutions.
Sometimes lenders decide not to complete the foreclosure—maybe because repairs and back taxes are too costly. They won't take the title but don't have to tell you. When the title stays in your name without you knowing the foreclosure wasn't finished, it's called a zombie title.
How Zombie Foreclosures Impact Homeowners
A zombie foreclosure turns a mortgage default into a bigger issue, affecting the whole neighborhood, not just you. If you leave after the notice, you're abandoning without grasping the legal and financial consequences.
You're likely still on the hook for maintenance, HOA fees, property taxes, and upkeep. These don't stop just because you've left. Local authorities might come after you for unpaid taxes or maintenance costs.
To avoid this, if you've defaulted and face foreclosure, stay in the residence until you get an official vacate notice. Then, check that the title is no longer in your name.
What Does 'Zombie Foreclosure' Mean?
Zombie foreclosure means you get a pending foreclosure notice and abandon your house before it's legally required. The process can drag on, so you're still responsible for taxes and insurance. If you leave and it becomes a zombie foreclosure, the house often deteriorates.
Will a Zombie Foreclosure Impact My Credit?
Yes, a zombie foreclosure will hit your credit because walking away from your mortgage counts as defaulting on the loan.
Where Do Zombie Foreclosures Happen?
Foreclosures can occur anywhere, but zombie ones are common in lower-income areas. A Q1 2022 report from ATTOM Data Solutions shows the Midwest and Northeast have the most.
Why Are They Called Zombie Foreclosures?
They're called zombie foreclosures because they happen after you receive a default notice, starting the foreclosure. If you leave before the bank forecloses, the home stays vacant and often falls into disrepair, like something undead rising again.
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