What is 'Zombie Title'
A zombie title is a real estate title that remains with a homeowner who is under the impression that he or she has lost the property to foreclosure, and that the title has passed to the lender. Zombie titles are the result of lenders initiating foreclosure proceedings by issuing a notice of foreclosure and then unexpectedly dismissing it.
If the homeowner 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 or unjustifiable costs.
BREAKING DOWN 'Zombie Title'
Zombie titles are often the result of confusion regarding foreclosure rules. Lenders and banks are under no obligation to foreclose and take legal title to a property, even if the homeowner has defaulted on the loan. A lender may choose to walk away, charging off the debt rather than taking title to the property. If the lender has initiated the foreclosure process, the homeowner is left with a zombie title.
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.
The 2007-2008 mortgage lending crisis resulted in millions of homeowners facing foreclosure. While the majority of those foreclosures were carried through, many were left dangling in the middle of the process or unexpectedly dismissed, resulting in a large number of homeowners unknowingly holding zombie titles.
Financial Impact of Zombie Titles on Homeowners
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 those costs are 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. Many homeowners do not realize they hold zombie titles until they find themselves being pursued by mortgage servicers, debt collectors and local governments.
Homeowners can protect themselves against zombie titles by seeing the foreclosure process to completion, as well as making sure that the title to their home legally transfers to someone else.