Zombie titles occur after a homeowner defaults, but when a lender never follows through with the foreclosure.
Although a mortgage loan servicer may notify a borrower in default that foreclosure proceedings have begun, the lender is under no obligation to continue with the process. When homeowners are given a foreclosure notice, many leave their properties because they believe they will be evicted.
During this time, however, the borrower in default is still liable for the property, even though he or she no longer lives there and is not aware of the fact that he or she still owns it.
Homeowners are legally liable for their home which means they are responsible for property maintenance costs, utilities, and taxes — all for properties they don’t realize they still legally own.
The start of zombie title issues became pronounced during the mortgage crisis. Roy Oppenheim, co-founder and partner of Oppenheim Law, said banks took shortcuts for underwriting, appraising, and securitizing.
“It was a crazy time,” he said. “They were securitizing loans faster than they were originating them.”
Tanya Marchiol, CEO of Team Investments, a real estate firm, said foreclosed homeowners cannot leave their house in shambles and expect the bank to pick up the pieces.
“It is your responsibility to know what is going on with your house,” she said. “The bank can cancel the foreclosure and never tell the homeowner.”