A home is considered a zombie property when a homeowner moves out after receiving a foreclosure notice, but the bank does not complete the foreclosure process and assume ownership. As a result, the homeowner remains the owner of a vacated property.
Zombie properties result, in part, because a bank fails to follow through on a threatened foreclosure. There may be a number of different reasons for this. The property may have sat vacant and attracted squatters; the bank may not want to deal with the problem. Or the bank may already have too much inventory of foreclosed homes and not want to add to it. Or the costs of foreclosing are not justified by the price the house will command on the market. In some cases it may be that the foreclosure paperwork slipped through the cracks and was lost; the bank may not even be aware that it is missing.
In any event, zombie properties may fall into states of disrepair because no one occupies or cares for the property. Some banks may simply walk away from such properties and leave the problem to the homeowner, if the property has become too deteriorated. The bank will not seek to become the owner through the foreclosure process.
Recent statistics estimate that there are over 300,000 zombie properties in the U.S., although the number is declining as the mortgage crisis recedes.
What Are Some Issues to Consider with Zombie Properties?
A zombie property is essentially an abandoned property, except that the homeowner may still retain the title; the owner might not even be aware of it. Zombie properties are associated with various legal issues that can result in problems for the homeowner, such as:
- Deterioration and loss of value of the home, for which the owner is still responsible; the homeowner is still responsible for the home, but its value continues to decline;
- Creation of unsafe conditions and health hazards, such as toxic mold, hazardous chemicals, and dangerous structures;
- Issues with people squatting on the premises or the takeover of the property for crime-related activities, such as drug-dealing or gang-related activity; these issues can then lead to a public nuisance problem;
- Failure to follow city codes regarding lawns, tree growth, animal control, pests, and other issues that can lead to the city condemning the home. Or, the city government might come looking for the owner to collect fines or fees owed for failure to comply with housing codes and municipal ordinances;
- Issues with back taxes owed on the property; the owner who has moved out does not pay the property taxes; the bank, which does not want to own the property, does not pay them either. The owner is the one who remains legally liable for the unpaid property taxes.
- If the home is within the jurisdiction of a homeowners’ association, the homeowners’ association may be trying to collect unpaid association fees. They may have placed a lien on the property.
Again, it is the homeowner who remains liable for paying taxes and other possible assessments. The longer the taxes go unpaid, the more likely it becomes that fines accumulate and such issues as tax evasion come into play. In some cases, the local government may seek to find someone on whom to pin liability for the condition of the home, especially if it is causing problems for the surrounding community. In this case, liability might be traceable back to the homeowner if their name is still on the title.
How Can a Zombie Foreclosure Be Prevented?
Most zombie foreclosures can be prevented by simply following up with the bank or with the real estate agents to ensure that either the foreclosure process or a home sale transaction has been fully completed.
An owner who wants to leave a property that has fallen into foreclosure must be sure to either sell the property or make sure steps are taken to transfer ownership to the bank that holds the mortgage loan. The owner should check to ensure that the title has transferred. This means making sure that a new deed with a new owner has been recorded in the county in which the home is located.
Alternatively, an owner can explore various foreclosure alternatives with the bank that holds their mortgage loan. The owner could contact the bank and work to find a way to remain in the home. One option is a forbearance agreement. In a forbearance agreement, the bank agrees not to proceed with a foreclosure and the owner agrees to keep making mortgage payments, although the payments may be less than they were in light of the owner’s changed financial circumstances.
In many cases foreclosure could be avoided through a simple re-negotiation of mortgage terms, or other similar actions. The owner just needs to try to work with the bank and not move out without taking further action. Even if the owner wants to leave the property, the owner must make some kind of arrangement with the bank to ensure that the owner’s name is removed from the title deed and the bank takes ownership of the property. An experienced real estate lawyer can arrange a transaction of this type.
During the pandemic period in 2020 and 2021, a government moratorium on foreclosures of mortgages that are backed by the federal government has prevented foreclosure on about 70 percent of home loans. Private lenders have also offered relief to homeowners who are having trouble paying their mortgage loans. These moves have helped to keep the rate of zombie foreclosures down during the pandemic..
If a homeowner is currently experiencing problems making their monthly mortgage payment, they may be able to avoid foreclosure through the government moratorium. An experienced real estate lawyer or other real estate professional can provide information about additional options for a person at risk of mortgage foreclosure.
Do I Need a Lawyer to Help with Zombie Properties or Zombie Foreclosures?
Being involved in a zombie property situation can create a number of different legal issues and disputes. It is definitely in your best interests to consult with a foreclosure lawyers in your area if you need help with your property.
Your attorney can provide you with legal advice and guidance that can help you avoid a zombie foreclosure situation, before it is established. If you are already in a zombie foreclosure situation, you may need a lawyer to help you negotiate resolution of a number of issues, e.g. unpaid property taxes, municipal fines, gaining access to the property, deciding how to unload the property. The situation is potentially complex.
An experienced real estate lawyer can help you negotiate solutions. Also, if you need to appear in court, your lawyer can provide you with legal representation during trial or hearings.