What Is a Zombie Foreclosure?

A zombie foreclosure occurs when a home is left vacant by homeowners who have defaulted on their mortgage and either incorrectly believes they have to immediately move out after receiving a foreclosure notice or choose to abandon the property for other reasons. More commonly, the former scenario where the owner mistakenly believes that the foreclosing lender is now responsible for the property, even though the homeowners still hold title to the property. For example, let's say a homeowner defaults on their mortgage and vacates their property, and the lender doesn't complete the foreclosure process, so the title is still held by the original homeowner. The property becomes unoccupied for an extended time, and the lawn, driveway, etc. is not taken care of. As a result, the state of the property falls into disrepair, creating safety concerns and resulting in an appearance that may lower property values in the surrounding community.

How a Zombie Foreclosure Works

Zombie foreclosure results from a homeowner's misunderstanding of the foreclosure process. During a typical foreclosure, the homeowners notice the institution holding the defaulted mortgage that the house is entering foreclosure.

After this notice is issued, there is a mandated waiting period during which the homeowners can pull the house out of foreclosure by paying a large lump sum of money. The required payment may range from a few back payments to the total amount the homeowners owe in arrears or the entire balance of the mortgage. Until a foreclosure goes through, the homeowner continues to hold the title to the property. If the homeowners do not pay the lump sum, the process continues, and a court will rule that the house belongs to the lender. It is only after this point that the house legally becomes the lender's property that the homeowners must vacate the property.

Sometimes, a lender will decide not to complete a foreclosure—one reason might be that it's too expensive to pay for repairs and back property taxes that are owed on the property. The lender won't take title to the house but is under no obligation to notify the homeowner of this. In this circumstance—when the title of a home in zombie foreclosure remains in the name of the original homeowner (who is often unaware that the foreclosure wasn't completed)—it is known as a zombie title.

How Zombie Foreclosures Impact Homeowners

Zombie foreclosure escalates a bad situation—default on a mortgage—making it a problem for the entire neighborhood, not just the homeowner. A homeowner who leaves a property upon receiving a foreclosure notice is abandoning the property without understanding the legal and financial ramifications of the notice or their actions.

The owner of a zombie foreclosure is likely still responsible for maintenance, upkeep, homeowners association (HOA) fees, and property taxes. These requirements do not end just because someone has abandoned their home. Eventually, local authorities could attempt to recover unpaid property taxes or fees or charge the owner expenses for maintenance.

To protect against the impact of a home falling into zombie foreclosure, homeowners who have defaulted on their mortgage and are facing foreclosure should stay in the residence until an official notice to vacate arrives. Afterward, they should follow up to ensure that the title of the property is no longer in their name.