Zombie titles

Zombie Titles: When Foreclosures Become Walking Dead Homes

This article was originally published on Realtor.com:

Americans learned all kinds of new real estate terms during the housing downturn. Short sales, non-judicial foreclosures, and sub-prime mortgages are just a portion of the real estate bust lexicon that is now a part of everyday conversation. Add “zombie titles” as the latest dark moniker on the list.

Zombie titles are hanging around the necks of many Americans’ financial futures. Robo-signing and MERS title issues are already top-of-mind for real estate pros, but for more and more consumers who have defaulted on a loan, these issues are coming to the forefront of their personal finances.

What is a zombie title?

Title is a legal document that assigns ownership and responsibility for a piece of real estate to an owner. When a homeowner defaults on a loan, the lender begins the foreclosure process to take back the title to the home. The foreclosure process can take anywhere from a few months to a few years between the first notice of default and the lender’s scheduled auction/foreclosure sale. Often, the homeowners move out of the home during this time period, believing that it will be sold.

It usually is. However, sometimes the lenders get caught up in legal/financial issues that delay their ability to actually conduct the sale of the home. Sometimes they just change their minds and never push foreclosure through to closing.

Enter the zombie title. Homeowners Joe and Jane have suffered the financial consequences of the foreclosure process, their credit is ruined, and they don’t own a home (to their knowledge). They moved out of their home two years ago when their lender scheduled a foreclosure sale date. Out of the blue, their local city government begins sending them fines for not keeping up their property. They thought the bank had sold it off already. The house has been deteriorating for years, and might be boarded up or inhabited by squatters. This half-dead home is still haunting Jane and Joe financially because the zombie title is still in their names.

Zombie neighborhoods

These kinds of homes are a blight on neighborhoods. A single unkempt home on a nice street can be a financial and mental burden on an entire community. The owners won’t pay for improvements, because the lender could come back at any moment and force the foreclosure sale through. The lender, HOA, and city can rarely fix up the home themselves, because it is still legally the private property of the homeowner. When properties sit vacant for long periods of time, they deflate nearby real estate prices and increase the likelihood of crime in, and near, the property.

Stay in the home?

Because of this, many real estate professional are advising homeowners who are in foreclosure to stay in their homes until the sale of the home has closed. Staying in the home is currently the only way to keep it secure and in good condition.

This advice will protect some homeowners from potential liability, but it really doesn’t get to the crux of the issue. The owners will be in an open-ended legal and financial limbo, and there seem to be no repercussions for the lender that began the foreclosure process but never followed through. The zombie title will continue to hang over their heads until the lender, at its own discretion, decides to finish the sale.

Limits on foreclosure timelines?

The foreclosure process is messy, and it’s difficult to put a straightforward timeline on the process. Some types of foreclosures take longer than others.

However, it would make sense to have a set of guidelines so that homeowners know whether or not their home is going to be sold. If a lender schedules an auction, sheriff’s sale, or another kind of foreclosure sale, that lender should be required to finish the process within a set amount of time. Whatever that timeline is, it should be clear to the homeowner that they will not be dragged down into an endless financial mess.

Put the zombies out of their misery

Foreclosure is hard on everyone. It is certainly a time for renewed emphasis on responsible lending and credit behavior. Homeowners who lose a home to foreclosure will spend years re-learning those lessons as they rebuild their credit. In the meantime, they should also get closure from their lender before they start rebuilding. Leaving a homeowner’s title in a zombie state will only serve to drag the homeowner and the community into more needless financial losses.