A Zombie Title: What Is It?

A zombie title is a property title still held by a homeowner who erroneously believes that the property has been lost to foreclosure and that the title has subsequently been transferred to the lender. Lenders who start foreclosure proceedings by sending out a notice of foreclosure and then abruptly reject it wind up with zombie titles.

The homeowner will be left with a zombie title if they are not informed of a foreclosure dismissal. A lender may choose to drop the foreclosure for several reasons, such as excess inventory or excessive expenses.

Given that the homeowner is still listed on the property title and is thus still accountable for property taxes and code violations, a zombie title might present a serious financial risk to them.

Knowing What Zombie Titles Mean

Homeowners who need clarification about foreclosure laws sometimes end up with zombie titles. When homeowners receive a foreclosure notice from their mortgage lender, they can vacate the property and move out. Before the foreclosure sale, the lender will appraise the property. The lender may decide not to accept the title if the property is in poor condition and requires a significant sum of money for repairs and delinquent taxes before it can be sold. This decision is made because good money should not be wasted on poorly performed repairs. The foreclosure process is deemed canceled if the lender renders the homeowner’s title void.

There are two causes behind zombie titles. First off, even in cases where the homeowner has failed on the loan, a lender or other financial institution is not required to accept the legal title of a property that is under foreclosure. The lender may decide not to acquire title to the property if the expenses of selling it or any prospective liabilities attached to it are too significant. Secondly, even if the lender chooses to notify the homeowner, it may still need the address or phone number of the homeowner who has moved out of state. The lender is not obligated to notify the homeowner if it decides to dismiss the foreclosure.

In this case, a homeowner will inadvertently retain title to the property and all accompanying expenses and liabilities as a house owner. Still, they will not get any of the anticipated advantages. Ownership is unchanged until a third party’s name appears on the title.

Current Patterns

The mortgage lending crisis of 2007–2008 put millions of homeowners in danger of going into foreclosure.1. Tens of thousands of homeowners in the years after the financial crisis unwittingly held zombie titles because, while most of those foreclosures were completed, many were abruptly dropped or left hanging. With the steady improvement of the U.S. economy and property market, the quantity of zombie foreclosures started to decrease.

But in 2022, job openings also increased when interest rates and inflation increased. Industry data indicates that around 1.3 million residential properties, or 1.3% of all U.S. residences, were unoccupied as of the third quarter of 2022.2.

Just over 7,700, or 2.85%, of the over 270,500 properties going into foreclosure during the third quarter of 2022 were lying unoccupied as zombie foreclosures, according to property data supplier ATTOM Data Solutions.

Financial Affect on Homeowners and Lenders

What are the lender’s financial ramifications? Banks may at least profit from the insurance, tax, and accounting advantages that result from such losses by walking away from such mortgages.3. To recover all or a portion of the loan, a lender may also sell the delinquent account to debt collectors.

While zombie titles may not have a substantial financial effect on wealthy financial institutions, they may cause homeowners who believed they had moved on to better times to face severe and often disastrous financial difficulties. A zombie title is a double-edged sword for a homeowner already struggling financially from bankruptcy. While they are starting to recover financially, they might get a hefty charge for unpaid taxes and code violations.

A vacant house, for instance, is more likely to become dilapidated. According to the local government, the homeowner may also be responsible for maintenance and repairs on the property and paying property taxes. The zombie title homeowner is accountable for paying demolition expenses if the house is abandoned and has to be torn down.

The homeowner must also deal with the plethora of issues that come with an abandoned property. These might be anything from problems brought on by bug infestations or the property being utilized for illicit activities to adverse possession or difficulties resulting from settlers not authorized to be there.

Effects on Neighborhoods

Other homes in the area lose value as a result of abandoned residences. As neither the lender nor the absentee homeowner will take responsibility for the property’s upkeep, complaints from neighbors and locals about abandoned and neglected houses frequently force the local municipality to step in and perform essential maintenance like trimming overgrown yards or trash removal.

Over time, the expenses of hiring a third party to maintain the system and the fines for breaking the rules may accumulate. The homeowner may be subject to penalties, fees, and legal action if such expenses are not paid. Zombies may also have their credit ruined, their pay and tax refunds withheld, and their credit destroyed, which might lead to financial difficulties. Many homeowners know they own zombie titles once local governments, debt collectors, and mortgage servicers start pursuing them.

Unknowingly, purchasing a property with a zombie title may also put buyers in a complicated legal situation. The prior owner might be unable to give the buyer title because of liens or other issues resulting from unpaid fines and taxes. The adage “caveat emptor” ought to be the main rule when making the most significant purchase that most people make: a home.

Some real estate experts suggest that the homeowner’s sole option is to remain in the house throughout the foreclosure process. In any event, homeowners may guard against zombie titles by ensuring that the title to their property is lawfully transferred to another party and by following the foreclosure process through to its conclusion.

Conclusion

• When a foreclosure is dismissed but the owner is not informed of the dismissal, the title remains with the homeowner, known as a zombie title. So, the homeowner still needs to learn about the title.
• Suppose the expenses of selling the property (due to unpaid taxes, liens, and fines) or the potential liabilities are too significant. In that case, the lender may walk away rather than accept ownership of the foreclosed property.
• Zombie titles occur when a financial institution dismisses a foreclosure without having to assume legal ownership of the property and may be unable to contact the proprietor.