Zombie Foreclosures: Borrowers Hit With Debts That Won't Die

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Foreclosure limbo: foreclosure lawn sign

By Les Christie


Borrowers are discovering that their foreclosed homes are coming back to haunt them -- long after they have moved out. In these so-called zombie foreclosures, borrowers move out of their homes after their bank schedules a foreclosure auction only to find out months or years later that the auction never took place or the bank never transferred the deed to the house. That means the borrower still technically owns the home, leaving them on the hook for property taxes, fees and for homeowners' association dues.

Since the housing bubble first burst seven years ago, almost 2 million properties have started the foreclosure process but never completed it, according to RealtyTrac. In half of those cases, the homeowner is fighting to stay in the home. But there are close to 1 million properties that are in some sort of foreclosure limbo. While no one knows the exact number, it's estimated that tens of thousands of those properties could be zombie foreclosures.

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10 States With the Highest Foreclosure Rates
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Zombie Foreclosures: Borrowers Hit With Debts That Won't Die

2012 foreclosure rate: 1.64%
November 2012 unemployment: 7.3% (20th highest)
Home price change (2007Q2-2012Q2): -7.3% (34th largest decline)
Processing period: 145 days

Between the second quarter of 2007 and the second quarter of 2012, home prices in Colorado declined by just 7.3%, well below the nationwide decline of 27.6% over that time. Despite this limited decline in home prices, one in every 61 properties in Colorado was in foreclosure in 2012 versus one in every 72 homes nationally. On a positive note, the number of properties with a foreclosure filing in the state last year was down by 6% from the year before, while nationwide foreclosures declined by 2.7%.

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2012 foreclosure rate: 1.66%
November 2012 unemployment: 8.3% (12th highest)
Home price change (2007Q2-2012Q2): -10.8% (27th largest decline)
Processing period: 150 days

In South Carolina, one in every 60 homes was in foreclosure in 2012. The state was less-affected by the housing collapse than many others. Home prices declined by just 10.8% over the five years ending in the second quarter of 2012, a rate lower than in more than half of all states. Still, many residents could not find work to pay off their mortgage. South Carolina’s 8.3% unemployment rate in November 2012 was among the higher rates in the nation despite a 1.5 percentage point decline from the year before -- among the largest declines in the nation over that period. Despite declining unemployment, foreclosure activity increased by 18.9% in the state between 2011 and 2012 versus a 2.7% decrease for the U.S. as a whole.

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2012 foreclosure rate: 1.69%
November 2012 unemployment: 8.9% (6th highest)
Home price change (2007Q2-2012Q2): -31.9% (6th largest decline)
Processing period: 60 days

In 2012, foreclosure activity declined by 23.5% in Michigan -- which was among the larger declines in the nation. Despite foreclosure activity declining and despite having a foreclosure processing  period of only 60 days, Michigan’s foreclosure rate remained among the nation’s highest last year. Many homeowners in the state have seen the value of their homes fall considerably in recent years. Over the five years ending in the second quarter of 2012, home prices fell by 31.9% -- more than all but five other states. Additionally, from the second quarter of 2011 through the second quarter of 2012, home prices rose by 1.2% nationwide, but prices in Michigan remained effectively flat.

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2012 foreclosure rate: 1.75%
November 2012 unemployment: 6.8% (25th lowest)
Home price change (2007Q2-2012Q2): -11.6% (23rd largest decline)
Processing period: 217 days

Although the nation’s housing market continued its recovery in 2012, last year was difficult for many Ohio homeowners. While home prices rose slightly nationwide over the 12 months ending in the second quarter of 2012, Ohio home prices fell by 0.5%. Worse yet, Fiserv projects home prices in Ohio to keep falling through mid-2013, and that the state’s real estate market will grow at a slower rate than nearly all other states from mid-2013 through mid-2014. Last year, foreclosure activity in the state increased by 12.8% from the year before. And further driving up the foreclosure rate, the foreclosure processing period takes 217 days in Ohio -- longer than most states.

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2012 foreclosure rate: 2.33%
November 2012 unemployment: 9.8% (3rd highest)
Home price change (2007Q2-2012Q2): -41.0% (4th largest decline)
Processing period: 117 days

From the second quarter of 2007 through the second quarter of 2012, home prices in California fell by 41%, a larger decline than all but three other states. But in the aftermath of the U.S. recession and housing crisis, home prices in the state have rebounded. Over the three years ending in the second quarter of 2012, home prices increased by 7.3%, more than all states except Virginia and North Dakota. Still, the widespread and long-lasting effects of the recession -- the state’s 9.8% unemployment rate remains among the worst in the U.S. -- prevent many homeowners from affording their mortgage. Although foreclosure activity in California declined by 25.4% in 2012, one of the largest declines in the U.S., the state still had one of the nation’s highest foreclosure rates last year, at one in every 43 homes in foreclosure.

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2012 foreclosure rate: 2.58% (tied for 4th highest)
November 2012 unemployment: 8.7% (8th highest)
Home price change (2007Q2-2012Q2): -30.3% (7th largest decline)
Processing period: 300 days

Illinois’ housing market was among the biggest losers during the recession, as home prices declined by more than 30% between the second quarter of 2007 and the second quarter of 2012. However, Fiserv projects that home prices will rise by an annual average of 5.5% through 2017 -- more than any other state. Illinois had one of the nation’s largest increases in foreclosure activity in 2012, at 32.6%, leading to one of the nation’s highest foreclosure rates. This rate, however, may be inflated by one of the longest foreclosure processing periods in the U.S., at 300 days.

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2012 foreclosure rate: 2.58% (tied for 4th highest)
November 2012 unemployment: 8.5% (9th highest)
Home price change (2007Q2-2012Q2): -32.9% (5th largest decline)
Processing period: 37 days

From mid-2011 to mid-2012, no state had a larger decline in home prices than Georgia, where prices fell by 12.3%. As of November, the state’s unemployment rate remained among the highest in the nation at 8.5%, despite declining by one percentage point over the preceding 12 months -- faster than the national decrease of 0.8 percentage points during that time. Like the nation as a whole, foreclosures declined slightly in the state from 2011 to 2012. But despite a 4.2% decline in foreclosure activity and one of the nation’s fastest processing periods of 37 days, Georgia’s foreclosure rate remains among the highest in the nation.

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2012 foreclosure rate: 2.69%
November 2012 unemployment: 7.8% (17th highest)
Home price change (2007Q2-2012Q2): -45.1% (2nd largest decline)
Processing period: 90+ days

Over the 12 months ending in the second quarter of 2012, home prices in Arizona rose by 12.7% -- by far the largest increase in the U.S. during that time. Additionally, foreclosure activity in the state fell by 32.9% -- one of the largest decreases in the nation. Despite these improvements, home prices in mid-2012 remained 45.1% lower than they were five years before, the second-largest drop in the nation during that time, while the state’s foreclosure rate remained among the nation’s highest.

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2012 foreclosure rate: 2.70%
November 2012 unemployment: 10.8% (the highest)
Home price change (2007Q2-2012Q2): -56.8% (the largest decline)
Processing period: 116 days

According to RealtyTrac, Nevada had the highest annual foreclosure rate in the U.S. for five consecutive years until 2011. Last year, however, foreclosure activity in Nevada declined by 56.5% from the year before -- more than any other state in the nation. Though the state still had the nation’s highest unemployment rate as of November of 10.8%, this represented a nation-leading 2.4 percentage point decline from the year before, when the unemployment rate was 13.2%. But these improvements have not helped home prices recover. After declining by 56.8% over the five years ending in mid-2012 -- more than any other state -- Fiserv projects home prices to fall another 5.3% through mid-2013, again leading the nation.

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2012 foreclosure rate: 3.11%
November 2012 unemployment: 8.1% (15th highest)
Home price change (2007Q2-2012Q2): -43.8% (3rd largest decline)
Processing period: 135 days

In 2012, one in every 32 homes in Florida was in foreclosure, the worst rate in the nation and well more than twice the national figure of one in every 72 homes. Despite generally declining across the nation, foreclosure activity rose by 53.5% in Florida last year -- among the highest increases in the U.S. However, foreclosure activity last year of 279,230 filings on homes was still down more than 40% from 2010, when there were more than 485,000 filings. Additionally, Florida’s home prices rose by more than 3% last year, better than the 1.2% nationally. And with unemployment falling to 8.1% in November, 2012 from 10.1% the year before -- one of the largest declines in the U.S. -- more residents may be able to avoid foreclosure going forward.

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Many of these homes are in low-income communities where foreclosures are so difficult to sell that lenders sometimes delay taking possession of the property to save on taxes and other costs that then stay under the borrower's name. Those debts can then go unpaid for years because the borrower is unaware they owe them, further slamming their credit score and making life after foreclosure even harder.

"The most frustrating part is that I can't move on," said Rose Nathan, a 37-year-old office manager. Nathan lost her South Bend, Ind., home in January 2009, after working out a deal with CitiMortgage to voluntarily walk away in a "deed in lieu of foreclosure."

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Multimillion-Dollar Foreclosures
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Zombie Foreclosures: Borrowers Hit With Debts That Won't Die

Location: Cherry Hills Village, Colo.
Price: $4.995 million
Beds/baths: 6/8
Sq. ft.: 11,949

If you can believe it, the price of this gorgeous Colorado homestead -- which the listing calls "the best lot in Cherry Hills" -- is reduced to entice buyers. The foreclosure has a gourmet kitchen, his and her pool cabanas, two guest suites and lovely gardens. "Priced to sell!" the listing says, and who wouldn't want to buy?

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Location: Leland, Mich.
Price: $4.75 million
Beds/baths: 7/6
Sq. ft.: 5,718

This prime lakefront property on Lake Michigan was built in 1996 and has three natural stone fireplaces, tougue-and-groove wood ceilings, as well as three wells on the property. Part of the lot may be available for development depending on local zoning laws.

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Location: Jupiter, Fla.
Price: $4.3 million
Beds/baths: 6/8
Sq. ft.: 9,153

You'd never guess that there would be a foreclosure in the same town as Celine Dion's famous manse, and one with an epic backyard water park. And from the looks of it, who would guess that this home would be said foreclosure? With grand archways, spiraling staircases and rooms awash in rich cherrywood, it is certainly not your typical foreclosure.

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Location: Monterey, Calif.
Price: $3.798 million
Beds/baths: 4/6
Sq. ft.: 6,266

The lawn may be a little bit overgrown, but this foreclosed California home can still be a dream come true with a little TLC. It has a large kitchen with wraparound granite countertops, a huge master suite and long, beautiful gallery walkways.

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Location: Las Vegas
Price: $3.55 million
Beds/baths: 5/8
Sq. ft.: 11,641

Las Vegas is one of the cities that was hit the hardest during the foreclosure crisis, but that doesn't mean that all its homes in foreclosure are dumps. This foreclosed mansion proves that: It has a grand entry foyer with sprawling marble floors, a modern-to-the-minute kitchen -- and even a theater!

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Location: Naples, Fla.
Price: $3.5 million
Beds/baths: 6/8
Sq. ft.: 8,355

The foreclosure crisis clearly didn't spare even the most exclusive of enclaves: This massive estate has private lake and golf course views, a four-car garage, soaring salon with fireplace and grand staircase, and even a private "in-law suite" in the eastern wing.

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Location: Greenwood Village, Colo.
Price: $3.3 million
Beds/baths: 6/9
Sq. ft.: 9,881

Still pretty new, this home sits on a 2.5-acre lot with beautiful mountain views. The good news is that, even though it's been foreclosed on, it should be in very good condition.

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Location: Henderson, Nev.
Price: $3.25 million
Beds/baths: 6/8
Sq. ft.: 12,872

This giant foreclosure has a massive kitchen, dual grand staircases, a backyard pool with fountain, and a gorgeous wine cellar.

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Location: Boulder City, Nev.
Price: $3 million
Beds/baths: 6/7
Sq. ft.: 9,245

You might recognize this palatial foreclosure: We wrote about it in August. But it's what's behind the home that is most memorable.

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There's an entire water park in the backyard, including a "lazy river," a water slide and a water mill.

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The interior of the home is equally impressive, with monstrous rooms and unique wood detailing.

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"On Christmas Eve, the bank called and told me a sheriff's sale was coming and I had to move out right away," she said. "So that's what I did -- seven days after New Year's." She sold her belongings and moved to Hawaii. Nearly two years later, she received a property tax bill from the City of South Bend for $5,000. The bank had never taken possession of the house. Citi told her attorney, Judith Fox, that the holdup was due to a lien on the home that they were never told about. Nathan said she knew of no liens at the time of the transaction. Upon doing a title search, Fox found no evidence of a lien until well after the bank agreed to the deed-in-lieu deal.

Meanwhile, the unpaid debt has crushed Nathan's credit score. The deed-in-lieu alone lowered her score by 80 to 120 points, but the unpaid debt meant her credit kept taking a hit. Eventually, her credit card companies cut her off, even though she said she was making her payments. Her auto loan now carries a 25% rate. Her car insurance premiums have skyrocketed. She can only afford a one-bedroom apartment where she lives with her three kids. And forget about buying another home. "Nobody will give me a mortgage," she said. Citi declined to comment on the case. Nathan said she has since paid off the lien with the hope that Citi will take the deed on the home.

Read the rest of this story on CNNMoney.

See more on CNNMoney:
Million-Dollar Foreclosures
Big Money Betting Big on Housing
America's Best Places to Live

Foreclosure Explained


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