Surviving the Zombie Foreclosure

Some homeowners feel like they’re living in a real estate horror movie. Having exhausted every last option, they can no longer make payments on their mortgage. Their credit is in tatters. The banks, which refuse to work with them on a loan modification or short sale, have destroyed their patience and pride. And then they get a letter telling them that the bank is foreclosing and their house is headed to auction. They think things can’t possibly get worse, but cue the scary music – because for some homeowners, the nightmare is far from over.

Homeowners in this situation may feel they have no choice but to move out of their home and move on with their lives. But in their haste to put a bad situation behind them, they put themselves at even greater risk. If the bank has started the foreclosure process but hasn’t taken physical possession of the property, the abandoned house becomes a “zombie” – a home can blight a neighborhood and haunt its former owners.

There are no regulations that require banks to inform homeowners that they’ve changed their mind about a foreclosure, and there is no national database that tracks “zombie homes.” So what can you do if your bank decides to walk away from the foreclosure process, leaving your name on the title of a home that you no longer live in?

  • Know the type of foreclosure you’re facing. Non-judicial foreclosures do not go through the state court system. Essentially, homeowners simply stop paying their mortgage and wait for their lender to institute foreclosure proceedings. Depending on the housing market in the area, banks may be more or less eager to take back a property. If the bank decides it won’t reap enough reward from the sale of the house, it may choose to walk away and document the house as a loss on its balance sheet. It may sell the mortgage balance to debt collectors who may pursue the absent homeowners for years. A judicial foreclosure proceeds through the state court system and, in states where it is allowed, a judgment for the deficiency (between what the house is worth and what you owe on the mortgage) will be rendered against you in court. In some states, lenders have the ability to sue for the unpaid balance for a period of time that ranges from six months to six years, depending on the circumstances.
  • Don’t try to get “revenge” on the lender. Don’t help create the monster. No matter how angry you are over the circumstances that have caused you to abandon your home, do not take it out on the house! There are serious legal consequences to destroying a home in foreclosure, and banks have even less incentive to invest the time and money needed to resell a property that is in disrepair.
  • Remember that until there is a bank sale and a title transfer, you remain the owner of record. Even if you have stopped paying the mortgage and the bank has sent you a notice of foreclosure, you sometimes can remain in the home. I know people who are still living in their homes several years after they have stopped making mortgage payments. The advantage in trying to stay is that you can maintain your home and avoid municipal fines that can be levied on abandoned properties. Remember, even if you aren’t living in the house, you are the responsible party until the lender legally takes possession. Another thing you need to do is to keep your liability insurance current, because you can be held responsible if someone gets hurt on the property. Pay real estate taxes and utility bills or risk facing collection action from the county tax assessor. If you do move out, be sure to leave the house in good condition. Do a walk-through and make sure everything is OK. Take pictures that show the home is in good condition. If you continue to live in the same area, drive by occasionally to make sure the house has not been broken into or vandalized.