We’ve all heard our fair share of real estate horror stories, but a zombie title is a nightmare that can creep up on homeowners going through foreclosure. So, what is a zombie title and how does it affect homeowners, buyers, and even neighbors? And, most importantly, what can you do to avoid being stuck with one?
The good news is that, of course, a zombie title has nothing to do with zombies. Whew! A home title becomes known as a zombie title when the bank decides to cancel the foreclosure process on a home after the homeowner has moved out.
“The borrower might move out to avoid potentially traumatic eviction proceedings, usually assuming that they are moving on to a new chapter in their life,” says Alan Chang, vice president of title operations at JetClosing, an app-enabled, mobile-first title and escrow company. But if the lender never completes the foreclosure, the homeowner may still be responsible for the property.
So, why would a bank seize a property and then fail to follow through? Sometimes, it may require too much money and work to get the home to the place where it is profitable. So the bank takes no further action on the property, but may not alert the homeowner.
“During the recession, and for a couple of years after, when there were many foreclosures, a zombie title was something to look out for,” says Bill Golden, an independent real estate agent with Re/Max Around Atlanta.
Why zombie titles are a problem for homeowners
One obvious problem with a zombie title is that the home can remain vacant for a long time—but the homeowner still owes taxes and is responsible for the upkeep.
“During this time frame, the home is often subject to neglect, vandalism, squatters, or potential fraud schemes,” Chang says. So even if these homeowners are not aware that they still own the home, they can be liable for anything that happens there.
Chang clues us in to one particular type of zombie title scheme: Scammers scout out properties that have fallen through the cracks of the foreclosure process. These individuals pretend to be the new owner, and attempt to take out a loan on the property, or they try to sell the property even though it doesn’t belong to them.
There goes the neighborhood
Zombie titles can also have adverse effects on the neighborhood where the house is located.
“The majority of these other neglected zombie properties become eyesores,” Chang says. “These houses can directly impact the curb appeal for the surrounding neighborhood, potentially resulting in a lower valuation for a neighboring property that is appraised for a refinance or sale.”
And if that’s not problematic enough, here’s another concern: “Zombie houses can also become magnets for squatters and illicit activity since, without a clear owner, they tend to remain relatively unmonitored,” Chang says.
How to avoid a zombie title
If you’re a homeowner going through foreclosure, make sure you stay abreast of the status of the home, even if you’ve moved out.
“If you have owned property in the past and parted with it in any way that is unusual or convoluted, get professional assistance finding out the status of any past title before you are surprised with such news,” Golden advises.
Buyers should also be aware of the title history of any property they are interested in purchasing.
“If you’re buying a foreclosed property, the best way to avoid getting in a sticky situation is to have the title searched during the due diligence period, so you’ll know quickly if there is a problem with the title. That will avoid a last-minute surprise,” Golden advises.
Chang agrees and says it’s important to do a title search and even have a title insurance policy.
“Title insurance protects a buyer by verifying that the owner attempting to sell a property to you has the legal right to do so,” Chang says. Without insurance, you could run the risk of having to pay attorney fees and other costs to untangle the title.
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