The phrase ‘zombie title’ sounds like something you’d earn after competing in Halloween costume contest – but the truth is, these titles are far from coveted and can be quite scary for homeowners facing foreclosure.
In simplest terms, a so-called ‘zombie title’ refers to real estate that was presumed to be foreclosed on, but for whatever reason, the banks decided to dismiss the case. At first glance, it doesn’t seem like a big deal. But for homeowners who received foreclosure notices, moved out, and presumed that their ownership status was revoked, it can be a nightmare.
In the wake of the latest housing crisis, millions of Americans lost their homes to foreclosure. Unemployment, negative equity and other challenging economic factors all contributed to the foreclosure epidemic that swept through the nation. As sad as it was for these folks to lose their homes, a certain percentage of homeowners faced an even more disturbing dilemma – their foreclosures never actually went through, which means they were left with the responsibility of paying their mortgage, even after they vacated the property.
Although rare, this type of thing does happen. Homeowners who receive a notice of foreclosure typically move out shortly afterward, presuming that their home (and their mortgage) is now the bank’s responsibility. Unfortunately, banks sometimes dismiss a foreclosure unexpectedly, without notifying the homeowner. Although a foreclosure dismissal might sound harmless enough, there have been reports recently of homeowners who had no idea that their foreclosure never went through until debt collectors started threatening them with lawsuits. One such case involved Joseph Keller of Ohio, who received notice of foreclosure from JP Morgan Chase after being behind on payments for 10 months.
A January news article from NBCNews.com reported that Keller and his wife were told that his single-family home in Columbus would be put up for auction. The couple packed their belongings and moved out, thinking the worst was behind them. Then, unexpectedly, Keller was being sued by the county because his home was in shambles, having been neglected for roughly three years. Soon after, tax collectors starting haunting Keller, sending notices about unpaid back taxes, sewer fees and bills for waste and weed removal. The final blow was when Chase’s debt collector started pressing Keller to pay his mortgage, which had jumped from $62,100.27 to $84,194.69 with fees and penalties. Sadly, Mr. Keller was just one of what is probably a growing number of homeowners afflicted by zombie titles. According to the NBCNews.com article, there is no national database that tracks zombie titles, but experts say “these titles number in the many thousands, and that the problem is worsening.”
So what do people do when they’re faced with a zombie title? If they couldn’t pay their mortgage before, how are they expected to make good on their payments now? In most cases, homeowners have their wages garnished and their tax refunds seized. For those who are unemployed, the threat of probation or jail time is a legitimate fear. But why are banks beginning to do this? After all, it wasn’t that long ago that banks were trying to foreclose on homes left and right amid the robo-signing scandal. What changed?
Some Banks See Costs of Foreclosure as Unjustified
The housing landscape is very different now than it has ever been, experts say. And due to these changes, banks are starting to hold off on foreclosures for a variety of reasons. John H. Corcoran, Esq., a real estate broker and investor in Los Angeles, had the following to say in a recent Yahoo! Finance article:
“For a variety of reasons, lenders may hold off on completing a foreclosure because they simply don’t want the house back, or because they have too much inventory on their hands, or because the costs of foreclosing do not justify completing the foreclosure.”
The bottom line is this: if you’re a homeowner – particularly a distressed homeowner – you should do whatever you can to educate yourself on the foreclosure process. Because banks are not legally obligated to take ownership of your home or notify you of a cancelled or delayed foreclosure, you may end up dealing with some very unpleasant surprises if you’re not clear on how the system works.
That being said, all this is not meant to scare you or turn you off from home ownership. The fact remains that home ownership in the U.S. is still considered a safe investment overall. We’re finally starting to see rising home values and the market is finally reaching stable ground. However, in order to avoid foreclosure and the subsequent issues that may arise, you should always approach a real estate transaction with knowledge and practicality. Expect the unexpected, as they say, and don’t be afraid to request information from your bank if you are at all unsure about your mortgage agreement.