The catchy nomenclatures “zombie foreclosures” or “zombie titles” were coined by news organizations to describe abandoned homes in a state of proverbial limbo. Such homes are ownerless, in the sense that they are unoccupied by owners that hurriedly jump ship after receiving foreclosure notices required by state law. However, instead of executing a quick and efficient auction of the property, the bank takes its time, sometimes years, to sell the home to the highest bidder.
A January Reuters Special Report examined the horrors of the “zombie title” coming back to “haunt” homeowners when they learn that the bank dismissed or stalled the foreclosure judgment. These clueless homeowners, trying to move on with their lives from the traumatic experience of home foreclosure, discover they are personally liable for years of property taxes, upkeep, and in many cases urban blight resulting from the home’s abandonment. The Reuters article zeroed in on the many perils of the zombie title by telling the story of a middle-aged man from Columbus, Ohio, who moved his family out of his home after receiving notice of a foreclosure judgment — only to have the home come back to “stalk” him several years later. Seemingly all at once, he was haunted by the walking dead- the County sued him for violating building codes, the tax collector started sending delinquent notices and city bills for property maintenance began to pile up. Adding injury to insult, his bank’s debt collector started pushing him to pay his mortgage which had “swollen” more than $20,000 since he had moved out, and worse still, the Social Security Administration rejected his disability benefits due to the “asset” of his home. This story demonstrates the many potential pitfalls of banks “walking away” from a foreclosure without bothering to inform the owners. Victims of this “foreclosure horror show” also frequently face having their wages garnished, their tax refunds seized, and their credit demolished.
Following the release of the Reuters report and a reverberation of news coverage, RealtyTrac- a company that bills itself as “the leading online marketplace for foreclosure properties and real estate data”- crunched some numbers to find that there are currently 301,874 “zombie” properties in the U.S. In an interview with the Chicago Tribune, RealtyTrac president Daren Blomquist explains how the company came up with this number by cross-referencing the addresses of homes in the foreclosure process with Postal Service data on vacant property. The numbers show Florida taking the lead with 90,556 vacant homes in foreclosure, with Illinois and California coming in a remote second and third with 31,668 and 28,821 zombie properties on the list. Meanwhile, approximately 1,000 “zombie properties” in Kentucky give that state the dubious honor of having the highest percentage of zombies (54%) in its overall foreclosure inventory.
The relative vengeance of the zombie phenomenon, then, varies by state, and is likely partly tied to the lengthiness of the foreclosure process. In Florida, Blomquist suggests that the longer mean time to complete a foreclosure (853 days) likely causes a higher number of zombie properties as homeowners lose their hope and walk away.
But the likelihood of a foreclosure going “zombie” seems more directly related to the neighborhood and characteristics of the property. Banks tend to “walk away” from foreclosures of older, less valuable homes for which they might in fact lose money in the process. Thus, after initiating foreclosure proceedings against such a property, a bank might decide it is in its best interest to walk away to avoid holding costs: many cities impose fines on the bank if the homes aren’t properly maintained, a burden which then falls to the unbeknownst homeowner when the bank jumps ship. As the original Reuters report points out, there are no regulations which require that banks inform homeowners when they “change their mind” about a foreclosure. Further, the Reuters article cites a 2010 Federal Reserve paper which finds that by walking away banks can gain insurance, accounting, and tax benefits from documenting the loss of the home, while avoiding the responsibilities and costs of ownership.
Even though in the $25 billion settlement with state attorneys general last spring, the 5 largest mortgage lenders agreed they would give borrowers notice of a decision to halt or delay a foreclosure, banks have not been held to task on this. Michael De Los Santos of PolicyMic explains:
What was supposed to be a solution for this [zombie] issue was the AG Settlement. However, like most solutions to the crisis over the last four years, enforcement is an issue. The settlement monitor is reliant on information provided by the banks to provide any enforcement. It doesn’t take much thinking to realize that banks aren’t going to intentionally turn over information that can lead to enforcement action. Provisions in the settlement require bank servicers to notify borrowers and tax offices of any decision to delay foreclosure or forgive the lien in lieu of foreclosing. Banks found a workaround: drop significant servicing portfolios on sub-servicers that are not under the settlement.
De Los Santos rightly emphasizes that the many thousands – around 300,000, according to RealtyTrac –facing this foreclosure Catch-22 will undoubtedly impact tenuous economic recovery in communities across the nation. The rise in family debt, tanking credit scores, decreasing property values, and increase in community blight and vagrancy which can result from zombie foreclosures obviously work against such recovery. To turn this around, he advocates for “real” regulation and enforcement. The tricky question seems to be, what would this “real” enforcement look like across a terrain of varying state and local responses to foreclosure? Would this be better addressed on the state, county, or municipal level or through a federal enforcement scheme?