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| Source: Alan Levine / License |
The
housing crisis that launched the 2008 recession had a dramatic scope and
effect. As 2015 draws to a close, many of the negative consequences of the
United States' housing bubble have only just begun to be ameliorated, in large
part due to rising housing prices. One particular problem, so-called
"zombie properties," has followed the national pattern: a nationwide
return to average rates with a few troubling local markets still affected by the
issue.
Zombie
properties begin with a “zombie foreclosure,” a term which is used to describe
what happens when homeowners leave a property undergoing foreclosure before a
lender actually obtains control over the property. When the lender then cancels
or delays the foreclosure, which can happen for a variety of reasons, the
property is left vacant, and its title remains in the homeowner's name. These
vacant properties are the “zombies,” and their existence has been a blight on
neighborhoods across the country. Luckily, educated homeowners can largely
avoid these problems, and housing policy experts have been hard at work
developing ways to stem the negative effects of zombie properties in parts of
the country where they remain a problem.
How
Zombie Foreclosures Work
When
homeowners receive a notice of foreclosure, their first impulse is often to
move out. However, in many states, the foreclosure process moves incredibly
slowly, both due to increasingly complex legal issues and banker malfeasance.
For example, several states have enacted stricter rules on lenders, forcing
them to produce paperwork that may have been lost or inaccurately created.
Furthermore, many lenders had very little interest in taking over properties
located in housing markets in economically challenged areas, instead choosing
to write off the loss. As a result, the property is left vacant. The once and
present homeowner to whom the property is still titled remains responsible for
numerous issues, including property taxes, while the surrounding neighborhood
suffers the ill effects of a neglected and empty property.
The
Consequences of Zombie Properties
A
homeowner that leaves a property before the foreclosure is complete can face
significant problems. Lenders who have written off a property may sell the
unpaid balance of the mortgage to a debt specialist, who will pursue the former
homeowners with considerable vigor. Housing associations and municipal housing
authorities can levy fines. In some areas, violations of property codes can
result in incarceration. Credit agencies will continue penalizing former
homeowners, while cities will bill them for any maintenance, including the cost
of boarding up empty houses or painting over graffiti.
Meanwhile,
the community in which a zombie property is located is also affected. An ugly
vacant home will drive down prices for the entire area, causing widespread
financial damage. Meanwhile, a vacant property has been shown to attract crime,
including squatting and vandalism. One study of zombie properties in Chicago
found additional concerning effects, including the fact that these properties
were far more likely to appear in areas with low incomes and in neighborhoods
with a high rate of minority residents.
Zombie
Properties Today
As
with the distinction between judicial and non-judicial foreclosures,
distinctions must be drawn between the national picture of zombie foreclosures
and regional variances. In many respects, the zombie property crisis is over.
At the peak of the housing crisis, there were more than 300,000 zombies in
neighborhoods across the country. However, the real estate experts at
RealtyTrac have estimated that 20,050 such
properties exist as of the third quarter of 2015. The significant decline in
these zombies - a 43% reduction since the third quarter of 2014 - is attributed
to numerous factors, including streamlined legal proceedings and rising housing
prices.
Despite
these improvements, some cities and states are still facing serious issues. For
the most part, the states with the most zombie properties are those with
judicial foreclosure systems that still remain clogged with unfinished
business, including New Jersey, Florida, and New York. However, some analysts
suggest that these numbers, which have risen even in cities such as Boston and
St. Louis, are largely going up because banks have finally begun completing the
foreclosure process, causing homeowners to move out and creating temporary
zombies.
Zombie
Property Fixes
Municipalities
and states still have many options for correcting their problems with zombie
properties. One of the most obvious options is to craft legislation that
requires lenders to inform homeowners and other interested parties that a
foreclosure has been halted or delayed. Cities can also use the tools they
already have, ranging from building ordinances, anti-blight provisions, and
other statutory powers that enable them to prevent zombie properties from
bringing entire neighborhoods down with them.
Meanwhile,
homeowners facing foreclosure simply need to keep one thing in mind: until the
title of the property is transferred through a successful foreclosure, the
property is theirs. It’s generally a good idea to continue occupying a property
throughout the foreclosure process, especially since it’s technically
"free" given that no further mortgage payments are expected.
Borrowers should ideally work with their lender to refinance a loan or
otherwise work out a payment schedule. However, in the absence of a workable
solution, borrowers can save considerable money simply by remaining on the
property until a foreclosure is finalized. As long as the title is in the
borrowers’ name, they can remain legally liable for the property, which is
another good reason to stay.
