due_logo
Search
Close this search box.

Table of Contents

Zombie Foreclosure

Definition

Zombie foreclosure is a situation in which a homeowner abandons a property under foreclosure but the lender does not complete the foreclosure process. As a result, the title remains in the homeowner’s name, leaving them liable for property taxes and other associated costs. This phenomenon can contribute to neighborhood blight, as the abandoned properties can become neglected and fall into disrepair.

Phonetic

The phonetic pronunciation of the keyword ‘Zombie Foreclosure’ is:Zombie: ZAH-m-beeForeclosure: for-kloh-zhur

Key Takeaways

  1. Zombie foreclosures refer to residential properties that have been abandoned by the homeowner after they have been served a foreclosure notice, but the foreclosure process has not yet been completed. This leaves the property in limbo between owner and lender.
  2. Zombie foreclosures often negatively impact neighborhoods due to the empty, often unkempt properties becoming eyesores and potential safety hazards. This can lead to a decline in surrounding property values and decreasing local revenue from property taxes.
  3. Efforts to combat zombie foreclosures may include interventions like land banks, prompt enforcement of foreclosure processes, and improved local regulations that help maintain property upkeep during the foreclosure process, protecting both lenders and the neighborhood where the property is located.

Importance

The term “zombie foreclosure” is important in the realms of business and finance because it highlights a specific phenomenon that occurs when a homeowner vacates their property prematurely, assuming that the bank or mortgage lender has already taken possession due to the foreclosure process. These abandoned properties can have significant negative impacts on communities, dragging down property values, attracting crime, inflicting damage to neighborhood appeal, and increasing the burden on local governments to maintain the unoccupied homes. Moreover, the former homeowners could still be held liable for unpaid taxes and maintenance fees, causing potential financial damage to those unaware of the ongoing foreclosure process. Thus, understanding zombie foreclosures is essential for policymakers, real estate professionals, and homeowners to mitigate these undesirable consequences and create financial stability in the housing market.

Explanation

Zombie foreclosures are a phenomenon in the real estate market which occurs when a homeowner abandons their property during the foreclosure process, believing their obligation to the property has ended. However, if the foreclosure sale does not occur or the title has not been formally transferred to a new owner, the original homeowner remains legally responsible for the property, even if physically vacant. The purpose of these zombie foreclosures, although not intentional, is usually to expedite the exit of homeowners who are under financial distress but inadvertently leads to undesirable consequences for both the homeowners and their communities.

Despite not being purposefully designed, the existence of zombie foreclosures can have significant implications on the housing market and neighborhood stability. For homeowners, they may still be liable for property taxes, homeowner’s association fees, and other associated costs without even realizing it. Ultimately, these financial burdens can further harm their credit score and impede future efforts to secure housing or loans. Meanwhile, neighboring properties may experience a dip in their value due to the presence of these unkempt and abandoned homes, which can also contribute to a rise in neighborhood crime rates or a decrease in overall community morale.

Municipalities and lenders are left to navigate the complexities of these zombie foreclosures in search of effective solutions to minimize their impact on the economy and maintain a healthier real estate market.

Examples

A zombie foreclosure refers to a situation in which a homeowner abandons a property before the foreclosure process is completed, and the ownership remains in the homeowner’s name. Here are three real-world examples:

1. In 2014, during the aftermath of the housing crisis in the United States, Florida was identified as a hotspot for zombie foreclosures. A homeowner in Miami, unable to make mortgage payments, vacated their home, thinking the bank would take over the property. However, the bank never completed the foreclosure process, and the property sat abandoned and deteriorating for years. The homeowner remained legally responsible for the property despite having moved out.

2. A homeowner in Detroit, Michigan, fell behind on mortgage payments for their home in 2013. They left the property, and the bank initiated the foreclosure process. However, the bank delayed completing the required legal steps for foreclosure and selling the home at auction. The property, therefore, continued to be in the homeowner’s name—becoming a zombie foreclosure—as it fell into disrepair and attracted crime.

3. In 2016, a homeowner in Cleveland, Ohio, was unable to keep up with mortgage payments and left their home. The bank started the foreclosure process, but the property took years to sell at auction since it was in a severely deteriorated condition. During that time, the house was considered a zombie foreclosure, with the homeowner unaware they were responsible for property taxes and potential fines from local authorities for property maintenance violations.

Frequently Asked Questions(FAQ)

What is a Zombie Foreclosure?

A Zombie Foreclosure is a situation where a homeowner abandons a property after receiving a foreclosure notice, but the foreclosure process is never completed, and the title remains under the homeowner’s name. The property is left vacant and becomes a “zombie property.”

How does a Zombie Foreclosure happen?

When a homeowner receives a foreclosure notice, they may decide to abandon the property, assuming they no longer have legal responsibility or financial liability. However, if the lender or bank does not complete the foreclosure process, the property remains under the homeowner’s name, leading to a Zombie Foreclosure.

Are there any issues associated with Zombie Foreclosures?

Yes, Zombie Foreclosures lead to various problems. For the homeowner, they may still be liable for property taxes, homeowners association fees, and other property-related expenses. For the community, these abandoned properties can be susceptible to vandalism, crime, and neglect, affecting neighborhood safety and property values.

How can a homeowner avoid being involved in a Zombie Foreclosure?

It is crucial to communicate with the lender or bank and be actively involved in the foreclosure process. If trying to work out a loan modification or short sale, the homeowner should follow up regularly and thoroughly with their bank to ensure the completion of the process.

How can a homeowner find out if their property is involved in a Zombie Foreclosure?

Homeowners can check the status of their property by contacting their local registrar’s office to determine whether or not the title has been transferred. They should also be monitoring their credit reports and staying informed about any unexplained property charges or taxes.

Can a Zombie Foreclosure be reversed?

In some cases, yes. If a homeowner discovers they are caught in a Zombie Foreclosure, they should contact the lender or bank and seek legal counsel to discuss their options. These options may include working on a loan modification, filing for bankruptcy, or re-engaging in the foreclosure process to resolve the situation.

What are banks and governments doing to address the Zombie Foreclosure issue?

Many regions have introduced legislation and programs targeted at streamlining the foreclosure process and addressing the problem of abandoned properties. Banks have also been fined or penalized for irresponsibly handling foreclosures and are encouraged to be more transparent and proactive in their foreclosure process.

Related Finance Terms

  • Delinquent mortgage
  • Abandoned property
  • Ghost inventory
  • Bank walkaway
  • Distressed asset

Sources for More Information

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More