Just as homeowners have been ditching their underwater mortgage loans and leaving the mess for their lenders to deal with, banks are walking away from foreclosures deemed too expensive to make following through worth it.
The problem is they often don’t follow up with the mortgage holders, leaving them financially responsible for the slowly deteriorating properties they thought they no longer owned. Years down the line, these “zombie foreclosures” rise from the dead to take a big bite out of their owners’ wallets.
What Is a Zombie Foreclosure?
According to a 2013 study performed by Real Estate data company RealtyTrac earlier this year, there are currently more than 300,000 zombie properties in existence. Almost a third are in Florida, with a whopping 90,556 zombie foreclosures on the market.
So how does a home become a zombie? It used to be that when a homeowner defaulted on a mortgage, the bank would take ownership of the home and title, foreclose on the property and recoup their money at auction. However, in a post-crisis housing market, banks often find that attempting to sell a depreciated property, which is likely surrounded by even more foreclosures, is just not worth the time and money. Instead, they halt the foreclosure process when it’s deemed a futile effort, and move on.
The homeowner has usually moved on as well after receiving a foreclosure notice and instructions to vacate the property from the lender. Unfortunately, because a foreclosure was never finalized, the house still belongs to the original owner whether they know it or not — and unless the lender bothered to notify the homeowner, they could be completely unaware.
According to Reuters’ Michelle Conlin, in a recent article for the Christian Science Monitor, “By walking away, banks can at least reap the insurance, tax and accounting benefits from documenting the loss — without having to take on any of the costs and responsibilities of ownership.”
Damaging Effects of a Foreclosure Auction that Never Happens
So who do the costs and responsibilities of ownership fall on then? The owner, of course — and those costs accumulate exponentially the longer that person remains unaware the home still belongs to them.
Expenses victims of zombie foreclosures often face include:
- Back taxes: Homeowners are responsible for paying property taxes, but victims of zombie foreclosures don’t know they are still liable for these taxes.
- Utility bills: While some utility companies will shut off service if bills go unpaid, others, like natural gas providers, will keep on charging for service every month.
- Maintenance: Zombie foreclosure owners will find themselves stuck with bills for lawn maintenance, trash pickup, graffiti removal, home repairs and other expenses fronted by the city when their unknowingly abandoned properties begin to pose health and safety risks and violate housing code.
- Destroyed credit: In addition to expenses directly related to the zombie foreclosure, homeowners also find their credit is ruined and must deal with repercussions such as excessively high interest rates and the inability to qualify for future loans.
The consequences of unknowingly allowing these expenses to rack up can be dire; victims of zombie foreclosures have had their bank accounts garnished, tax returns withheld, and even faced jail time for failing to bring their properties to code.
But then there are the truly dangerous consequences of these abandoned homes; it’s not uncommon for squatters to take up residence, vandals to wreak havoc and these uninhabited, unsupervised properties to transform into havens for criminal activity. Conlin even reports there have been several cases of homes exploding because the gas was never turned off.
Zombie foreclosures are not just financial nightmares for homeowners, but can lower home values and pose an immediate threat to the safety of their surrounding neighborhoods.
How to Ensure Your Lender Follows Through on the Foreclosure Process
There is no legal obligation on the lender’s behalf to keep you updated on the foreclosure process. That means if they pull the plug on pursuing a foreclosure auction, no one has to tell you. And according to CNN Money, the the nation’s five largest mortgage lenders involved in a $25 billion foreclosure settlement last spring agreed they would let borrowers know if they decided to delay or abandon foreclosure, but according to victims’ attorneys, this policy hasn’t been carefully followed.
Then there’s always the chance the bank simply loses your paperwork and forgets you exist, which does happen from time to time, especially within giant banking organizations.
In any case, it will be up to you to keep tabs on the foreclosure process and ensure ownership of your home does, in fact, change hands.
While your lender might not update you on the foreclosure process, you can always call and ask if your name is still listed as owner in their records. Check in every month to ensure your name is eventually removed. You can also perform a title search, which will verify the current owner of a property, by contacting your local tax appraiser or county clerk office.
Going through a foreclosure is traumatic enough, but the threat of a zombie foreclosure can make the ordeal that much more harrowing. Until banks take more responsibility in keeping homeowners informed during the foreclosure process, it will be up to them to ensure their properties don’t come back to bite them later.
Photo: Abode of Chaos