Foreclosure without title transfer can leave you with zombie real estate.
Image source: InvestorsEdgeUniversity.com
When you think of a "zombie" no doubt Halloween or the dreaded "Zombie Apocalypse" come to mind, but there's a real zombie threat closer to home you must know about! If you are in an impossible financial situation and find yourself facing bankruptcy and foreclosure, you may believe that walking away from your home is the best (or only) choice you have. Unfortunately, if it turns into a “zombie real estate” scenario, it can wind up biting you hard… Here's what you need to know.
Banks Can Easily Walk Away
Abandoning your house during the bankruptcy process can be a viable financial strategy but only if it is handled properly. In some areas, banks will send notices of foreclosure but then decide to abandon the property because it’s not worth the trouble or expense. We’ve written about this topic before. This can leave you in serious trouble and saddled with a zombie property, ongoing financial responsibility and limited rights.
If the bank cancels the foreclosure and sale, your name will remain as the homeowner of record and this is where problems can begin – particularly if you have already moved out. The bank can walk away from the process even at the last stage (just prior to the sale) with impunity – but it is more difficult for the homeowner to limit their liability if the bank abandons the property. What’s more – the bank can come back at any time and reclaim the property!
Homeowners Could Face Jail
If the bank abandons the property, you must understand that financial obligations will still accumulate associated with the property. This can include property taxes, sewer and waste removal fees and homeowner’s association dues. That's where the legal nightmare begins. If the home falls into disrepair, the city or county can assess fines as can the homeowner’s association. As long as your name remains on the title, these are your legal responsibilities.
If you aren’t living in the home, you may not receive notices of county or municipality assessments. If you don’t pay up or turn up for court dates, you could end up with a bench warrant issued in your name and face jail if you don't bring your home (even though you no longer live there) into compliance. If you are already deep in debt you can’t manage, a zombie property can make your money problems drastically worse.
So How Can You Take Out a Zombie Property for Good?
There are some steps you can take to protect yourself from the nightmare of a zombie property. First, you can stay in the home until the actual foreclosure sale happens. This way you will be sure to receive notices from the bank, homeowner’s association or municipality related to the property. Even if you’re not paying your mortgage payments, you can stay in the home until you receive a notice to vacate. You can take this time to save up money for a down payment on an apartment or rental property.
Another alternative is to try and secure a short sale to unload the property. Many lenders are open to this – particularly if the property value has diminished. The execution of the foreclosure and auction sale or securing a short sale will both get your name removed as the legal owner of the property. If a short sale is less than your mortgage balance, the lender can pursue you for the difference but you can eliminate this liability with a Chapter 7 bankruptcy filing.
Solutions for After a Foreclosure to Minimize the Zombie Effect
After the foreclosure and sale takes place, the bank may drag their feet in asking you to vacate the property and changing the county property records to reflect the change in ownership. This will leave you vulnerable for upkeep costs, fines and taxes. After a foreclosure takes place and you’re ready to move, you don’t want this burden – no one wants a zombie on their tail…
To deal with the zombie, file a quitclaim deed with your county property records office that transfers the ownership from you to the person or company that purchased the property at the foreclosure sale (it is typically the mortgage lender or a subsidiary). If the bank fails to foreclose and you must move on - becuase you can't afford to maintain the property (or for any other reason), filing a quitclaim deed to revert the property to the mortgage holder may be a viable solution as well.
To find out more about unloading zombie properties in North Carolina and getting a financial fresh start with bankruptcy, contact the law offices of John T Orcutt for a free consultation.