Zombie Titles

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DEFINITION of 'Zombie Titles'

A right to ownership and possession of a home that remains with a person who believes he or she has lost the property as a result of foreclosure. A zombie title is a title to real property that happens when a lender initiates foreclosure proceedings by issuing a notice of foreclosure and then unexpectedly dismisses the foreclosure.

If the person is unaware of the foreclosure dismissal, he or she will be left holding a zombie title. A lender may decide to dismiss the foreclosure for a variety of reasons, including a surplus of inventory, if the costs associated with a foreclosure cannot justify its costs or if the lender does not want to take possession of the home.

INVESTOPEDIA EXPLAINS 'Zombie Titles'

Lenders and banks are under no obligation to foreclose and take legal title to a property, even if the borrower has defaulted on the loan. A lender may choose to walk away, charging off the debt rather than taking title to the property.

Lenders are also not required to let a homeowner know if they have decided to dismiss the foreclosure. A homeowner may have moved out while unknowingly still holding title to the property, along with all of the associated costs and responsibilities of homeownership. Ownership does not change until someone else's name is on the title.

Zombie titles can lead to catastrophic financial troubles for homeowners who thought they had moved out and moved on. An unoccupied home, for example, can easily fall into disrepair. Not only does the homeowner remain liable for property taxes, but he or she can also be held liable by the local government for maintenance and repairs on the property.

If left unpaid, the homeowner could incur penalties and fees, and even face legal action. In addition, holders of zombie titles may have their wages and tax refunds garnished, and their credit destroyed, resulting in more financial trouble in the future. Homeowners can protect themselves against zombie titles by seeing the foreclosure process to completion, as well as making sure that the title legally transfers to someone else.

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