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"Zombie Title" -- When Homeowners Remain On The Hook


The press loves to use the word, "zombie," as an adjective when referring to things that were thought to be final. (For example: zombie title, zombie debt, and zombie mortgages.) It looks like the latest use is "zombie title." In Chicago, we've been dealing with zombie title issues for years. It's become such a problem that the City passed an ordinance requiring banks to register abandoned buildings. 

So what is zombie title? When homeowners receive a summons in a foreclosure lawsuit, or notice of a pending foreclosure sale (in states where there is no judicial foreclosure process), they often vacate the property, thinking that eviction is imminent. In a judicial foreclosure state like Illinois, being served with a summons means that you are many months away from being evicted (in some cases, 12-18 months.) Even in non-judicial foreclosure states, there are generally laws against self-help evictions -- the sheriff must come and evict you from a property. 

This does not stop people from moving out when they (incorrectly) believe that eviction is imminent. In many cases, people move out and assume that they no longer own the property. What people are discovering, however, is that banks do not always complete the foreclosure process. The vacant properties become an eyesore in the neighborhood and are generally vanadlized and stripped. 

Here's the kicker -- the "former" homeowner still holds legal title to the property. Since property taxes and most zoning/public safety ordinances are tied to the property, this means that the homeowner remains on the hook for taxes, fines, and penalties long after he or she has vacated the property.

The bank has no true legal obligation to do anything with the property until it has title to the property. In Illinois, this means that the bank does not have title until after the foreclosure lawsuit has ended and the sheriff's sale of the property has been confirmed in the bank's name (or that of a third-party purchaser). While Chicago's vacant buildings ordinance does put some obligation on the banks, this is a unique circumstance. It also has no affect on the obligation to pay property taxes, which can add up over several years if left unpaid. 

Since the law regarding transfer of title is handled at the state level, it is up to each individual state to attempt to solve this problem. This problem is not covered by the National Mortgage Settlement, and its drafters have pointed out that borrowers are free to bring their own lawsuits or rely on their over-worked and under-staffed Attorneys General for help. The banks simply state that they are complying with the law. 

In my estimation, the only way to get something done is for people to lobby their state legislators. In the meantime, if you receive a foreclosure summons or a notice of a sheriff's sale, do not assume that you must immediately vacate your home. You will still have obligations that run with the property and pointing the finger at your bank will be of little to no help.