We all know that when the homeowner is unable to make the payments on their mortgage the lender has all rights to seize the property and put it under foreclosure.
There are various types of foreclosures such as non-voluntary foreclosure, voluntary foreclosure, and zombie foreclosure.
In this post, we will understand what a zombie foreclosure is in detail.
Zombie foreclosure refers to a situation where a homeowner abandons their home after receiving a notice of default from the lender, expecting that their property is being foreclosed by the lender.
There could be various reasons why the foreclosure process can be canceled by the lender.
If the foreclosure is canceled and the process remains incomplete, the title of the property will belong to the owner, who may not know that they still own the property and is in charge of the property financially.
Why is this referred to as Zombie Foreclosure? As its name suggests, the property is truly dead, growing more and more dilapidated over time, but its mere presence can continue to harm its homeowners and the surrounding communities.
For example, suppose that a homeowner vacates a property after defaulting on the mortgage payment, but the lender does not complete the foreclosure process, so the homeowner still holds his title for the property.
The property becomes ownerless for a long time and is not being maintained as per the requirement.
Due to this, the condition of the property worsens and creates concerns regarding the safety of the property which can reduce the value of the property in the surrounding community.
A property becomes a zombie home due to the homeowner’s misunderstanding about foreclosure.
During a typical foreclosure, the lender will intimate the borrower with a notice of default for the subject property.
After this notification is made, there is a waiting period in which they can make a large amount of payment to avoid the property going into the foreclosure process.
The payment that the borrower needs to pay could be the number of payments that were missed including the late fees and other charges.
Until the foreclosure process is completed, the homeowner continues to hold title to the property.
If the owners do not pay the default amount within the waiting period, the foreclosure process is initiated and the court will decide that the house belongs to the lender.
It is only after the court’s ruling that the homeowner needs to vacate the property as the ownership of the property is transferred to the lender.
Often, the lender decides not to complete the foreclosure process due to high repair costs or the huge amount of unpaid property taxes.
In such a case the lender will not take title to the home and is not required to notify the homeowner.
This is when the property becomes a zombie property and the title of the home is referred to as a zombie title.
Abandoning your home and allowing it to be dilapidated will not relieve your responsibilities towards that home.
If you have moved to another house or city, the specter of your old house may continue to haunt you in many ways.
For instance:
Zombie foreclosures damage not only their current homeowner’s financial well-being but also the safety of the neighboring communities.
The best way to stay away from this type of foreclosure is to ensure that you understand the foreclosure process completely from the lender.
Make sure you vacant the home only once the process of foreclosure is complete.
When you get a mortgage for buying a new home, you need to ensure you make the payments on time according to the schedule.
If you default on the monthly mortgage payments the lender in the legal rights will go through a foreclosure action. In this post, we will understand what is foreclosure and the process that goes with it.
A foreclosure happens when a borrower is unable to make the mortgage payments. A foreclosure is a voluntary decision that usually occurs when a homeowner has a loss of income, excessive debt, unexpected expenses, medical emergencies, or possibly a divorce. So what does foreclosure mean?
Foreclosure is the process of forfeiting your mortgaged property after failing to pay the remaining balance.
Before entering into foreclosure, the borrower gets a grace period depending on the state guidelines providing an opportunity for the homeowner to discuss with a foreclosure attorney about possible alternatives to foreclosure like mediation or repayment plans with the lender.
There are two types of foreclosures. The first one is a judicial foreclosure. In a judicial foreclosure, the court grants the foreclosure based on a hearing. The lender will approach the court to get a judgment to foreclose on the property.
The second one is called non-judicial foreclosure in which the lender does not have to go to the court.
A notice of default is filed by the deed of trust beneficiary with the county courthouse using the “power of sale covenant” clause in the mortgage.
Every state allows the lender to apply for judicial foreclosure, however, not every state allows the procedure for a nonjudicial foreclosure.
To know the type of foreclosure in your state you can Google the information. Some states can follow both types of foreclosures.
The time to prevent foreclosure depends on the type, hence it is important to know what type of foreclosure is filed by the lender.
In most states for a lender to file a foreclosure, the homeowner must fall ninety days behind on his mortgage payments.
If you have missed less than three payments, you are not entering into a foreclosure process.
This phase is very important as you have to go through it before the foreclosure process can start and this is the phase where the homeowners have the most options at their disposal.
If you are in the missed payment phase, this is the best time to rearrange your finances, call your lender to work out alternate options, and put your home on the market for sale.
The second step in the process is called pre-foreclosure. Once the homeowner misses the payments for over ninety days, the lender records a public notice that the homeowner has defaulted on the mortgage payments and the notice is mailed to the homeowner.
In some states, this notice is called a notice of default in other states it is called lease pendants.
Depending on the guidelines in your state, the lender might be required to post the notice on your front door.
This phase is a grace period where the homeowner gets up to three months to clear the default. During this period, the homeowner can sell the home, come up with the cash for the defaulted amount or make some arrangement with the lender.
In the third step of the process, the property will be auctioned if the default is not cleared within three months after the notice of default was issued.
The lender or their representatives are known as foreclosure trustees sets a date for the property to be sold through an auction called a trustee sale. The notice of trustee sales is recorded in the county recorder’s office, delivered to the homeowner, posted on the door of the property, and published in the local newspaper to ensure the date, time, and place of the auction is known to everyone.
This auction is either held in a county courthouse or the trustee’s office. In many states, the homeowners have the right to redemption by paying the outstanding amount and stopping the foreclosure process up to the moment the property is sold at the auction.
At the auction the home is sold to the highest bidder, however, in most states, these auctions require cash payments.
Hence, it is difficult for buyers coming for auction to bring such a huge amount of cash, and many times the property remains unsold.
This leads the lenders to make an agreement with the homeowners to take the property back in what’s called a deed in lieu of foreclosure.
The fourth stage is where the property remains unsold at the auction, the lender takes ownership of it. The property is considered bank-owned property or Real Estate Owned By Lender (REO).
REOs are mostly listed with a local realtor for sale on the open market. Some lenders may sell the REOs at REO liquidation auction and recover their money.
Foreclosure is a legal proceeding where the lender sells or repossesses a property when the homeowner has stopped making payments on the mortgage.
As a homeowner understanding the individual steps of the foreclosure process is critical to understanding your rights and responsibilities along the way.
As it is a difficult situation for the homeowner, it is a costly procedure for the lender as well.
Hence coming to an alternate agreement for paying off the default amount would be the right thing to do for both homeowners and the lender.