Homeowners think that when they receive a notice of foreclosure from their bank, it’s time to move out. But sometimes banks unexpectedly dismiss the foreclosure, and the home’s title remains in the name of the owner who thought he or she had lost the property.
Homeowners who aren’t aware of this practice can find themselves the holders of so-called “zombie titles.” A regular title becomes a zombie title when a homeowner finds himself or herself being mindlessly pursued by mortgage servicers, local governments and debt collectors for bills related to a home she thought she no longer owned.
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. Banks are not obligated to foreclose and take legal title to a property if they feel the loss or potential liability is too great.
The bank may not tell the homeowner it has stopped moving forward with the foreclosure or canceled it altogether. The bank may not attempt to notify the homeowner because it isn’t legally required to. Even if it does try to notify the homeowner, it may not be able to locate a homeowner who has moved out and has new contact information.
Just because you moved out of a house doesn’t mean you automatically stop owning it. The house remains yours until someone else’s name is on the title. This change of ownership often happens after the bank sells your home at a foreclosure auction, but if the foreclosure process stops, your home won’t make it to auction.
After you vacate your home, a multitude of scenarios can occur placing you at risk for financial, legal and emotional distress. The home could be damaged and vandalized by criminals and you are held responsible for the damage. If your property violates local housing codes or ordinances, you could find yourself on the hook for those violations.
If your home is subject to local housing code violations that go unresolved, you may one day receive an unexpected bill, have your tax refund garnished or even be sued by the county or municipality for the cost of any repairs the government made on your behalf. If the house falls into such disrepair that the city decides to demolish it, you could be on the hook for a bill ranging from $10,000 to $30,000.
As long as you continue to own a home, you can continue to incur liability, including penalties, fees and accruing taxes no matter what you may or may not assume.
Zombie titles can plague home buyers, too. According to public record, Wells Fargo foreclosed on Richard R’s Florida home in 2007. The bank later changed its mind and transferred the title back to Richard R., but Richard R. never got the message. In 2010, Wells Fargo sold the home — which it didn’t own — to Brian and Holly, who didn’t learn about the mistake until it was caught by the county property appraiser. Brian and Holly now have hundreds of thousands of dollars tied up in a property they can’t even sell, because they don’t technically own it. The title is still in Richard R’s name.
This case may be extreme, or it may not be. The point of this information is to make the homeowner aware of disastrous pitfalls that could occur following a foreclosure proceeding that may or may not occur. Do not assume you are free to walk away. Verify the status of the title to your property by contacting the county tax assessor’s office or through the help of a qualified real estate professional. Knowledge is key and you need to know the facts regarding ownership, title and how you can protect yourself.