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.
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."
"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.
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