The housing bust and foreclosure crisis in America has left many homeowners facing some serious financial and housing issues, but it has also introduced another scary situation for homeowners who have defaulted on their mortgages: Zombie Titles. It might sound playful, but it is a serious situation that brings about hefty legal and financial consequences for delinquent homeowners. Further, vacant property is subject to vandalism and degradation, which can affect an entire neighborhood.
What is a Zombie Title?
A zombie title can occur when a homeowner leaves his or her home after the foreclosure process. A foreclosed home is often sold during a sheriff’s sale or trustee’s sale, which is scheduled by the lending institution’s attorney. Sometimes, though, the home isn’t sold and the title to the property is still in the homeowner’s name. Commonly, a lender can be delayed by legal or financial issues that interrupt their ability to sell the home. A lender can also, for reasons apparent or otherwise, choose not to complete the foreclosure process. But by this point, the homeowner has probably already moved out, believing they no longer own the home after defaulting on the mortgage.
Zombie Homes across the U.S.
A recent national survey conducted by RealtyTrac, a real estate information company in California, discovered a total of 301,874 zombie properties in the United States. Florida is at the top of the list in volume with more than 90,000 vacant homes in foreclosure, but Kentucky leads in percentage with less than 1,000 zombie properties, which is 54 percent of the total foreclosure inventory in the state. In terms of volume, Illinois and California are second and third on the nationwide list, with 31,668 and 28,821 such properties. As if the overall number of 301,874 homes throughout the U.S. weren’t staggering enough, another 10.9 million homeowners nationwide are considered at risk because they owe more than their property is worth. According to the RealtyTrac survey, zombie homes in Indiana, Nevada, Oregon, and Washington constitute 50 percent or more of the properties in foreclosure in those states.
The report was conservative in its methodology and did not account for cases in which a bank did not follow through on a foreclosure judgment, which leaves the property and homeowners in a legal limbo. The report also did not count property in Florida that had been in foreclosure longer than the state average of 853 days and for which there had been no significant recent activity.
How a Zombie Title Happens
When a home is foreclosed on, the homeowners will vacate after having been served a notice of a foreclosure sale by the bank. When (or if) the bank does not follow through with the process, the homeowners’ names are still on the deed, which means they are responsible for taxes and other bills related to the abandoned property. After a property has been abandoned for some time it can begin to accumulate a number of code violations for which the homeowner is held financially responsible. Unsuspecting homeowners are often surprised when they start receiving bills for back taxes and notices to bring their houses into compliance with city or township code violations, especially considering that they were under the impression that they were no longer listed as owners. A zombie title can destroy a person’s credit and can also result in the seizure of their tax refunds or wages. This can also affect a person applying for Medicaid or other asset-based programs, as the home is counted as an asset since their name is still listed on the deed as the current owner.
An abandoned home can taint a whole street, and it’s not uncommon for a neighborhood to be riddled with abandoned homes, which causes further blight. Even if the owner knows that the bank has not completed the sale, they often do not want to or are not able to pay for improvements anyway. In some cases, they are hesitant to pay for improvements because the lender could force the foreclosure sale through at any moment. In other cases, they do not have the necessary finances to repair the home according to city code. Since the property is still the legal property of the homeowner even though they have moved out after defaulting and receiving notice of a foreclosure sale, the city or the lender is rarely able to properly maintain the property, which of course results in the homeowner owing more money.
Possible Solutions or Courses of Action
Some real estate professionals have advised homeowners in this situation to simply stay in the home until the sale has closed. Although not the best solution, this is probably the homeowner’s only recourse to keeping the home secure and in good condition until closing.
However, a homeowner who decides to stay in the home will be forced into an intermediate state of open-ended legal and financial confusion. At this point, there do not seem to be any clear cut repercussions for lenders that begin the foreclosure process without completing it. The zombie title to the home will be in the homeowner’s name until the lender finishes the sale.
As a natural course of action in the foreclosure crisis, guidelines need to be set. Each new set of problems requires a new set of solutions, and the foreclosure crisis is no exception. Some of these problems have not previously been an issue, so guidelines are important in developing solutions. A set of guidelines could possibly provide homeowners with a timeline detailing when (or if) the different steps in the foreclosure sale process will occur.
Real estate professionals have also suggested limits on foreclosure timelines, which would require a lender who has scheduled a sale for the house to finish the process within a certain amount of time.
As a possible resource, we offer a free affidavit of deed form, which allows a grantor in a real estate transaction to verify the completed date of a conveyance. To be valid, a deed has to be delivered to and accepted by the grantee. Most states do not require the grantee’s signature on a deed to prove such acceptance and delivery, and because of this, a grantor can find it difficult to prove that the transaction was complete. If a grantor is made aware of the delivery and acceptance of a deed, they are better able to protect themselves against future claims and are better equipped to deal with questions regarding Medicaid or other asset-based programs.