After foreclosure, “zombie titles” may haunt homeowners for years

Six years after the collapse of the U.S. real estate market, thousands of homeowners across the country are discovering that they are still on the hook for houses they thought had been foreclosed upon years ago. According to a recent Reuters report, these so-called "zombie titles" are wreaking havoc on the lives of homeowners nationwide, resulting in garnished wages, lawsuits and even threats of imprisonment.

Flooded market changes bank foreclosure tactics

In the past, before the housing bubble burst, home foreclosures followed a fairly uniform and predictable path: When a homeowner fell too far behind on his or her mortgage payments, the bank sent a notice of foreclosure. The homeowner would then move out and the bank would either repossess the home or sell it at a sheriff's sale, putting the proceeds toward the unpaid portion of the mortgage.

In the wake of the Great Recession, however, the real estate and foreclosure landscape has changed substantially. With so many people unable to make their mortgage payments over the past several years, the market has become flooded with foreclosed properties - 10 million homes since 2006, according to RealtyTrac. Under more stable economic circumstances, Reuters reports, it would take nearly 20 years to rack up so many foreclosures.

After issuing a notice of impending foreclosure and prompting the owners to move out, banks sometimes decide that following through with the foreclosure process is not worthwhile. This typically occurs if the bank determines that the revenue generated through the sale of the property would be far less than the amount owed on the mortgage.

In these cases, the bank may opt to simply walk away from the property and count it as a loss, which carries certain tax and accounting benefits while avoiding the costs and responsibilities involved in assuming ownership of the home. Foregoing foreclosure also allows the bank to sell the unpaid loan to debt collectors, further minimizing their losses.

Homeowners left in limbo

Unfortunately, banks sometimes back out of the foreclosure process after the homeowner has already surrendered the property - and when they do, they rarely notify the owner of the change in plans. As a result, a homeowner may remain on the title long after he or she thinks the property has been surrendered to the bank. Even worse, banks often fail to respond to inquiries about the status of the title, meaning that even the most proactive homeowners may be left in the dark.

People who leave their homes due to anticipated foreclosures that never materialize can end up being billed for things like back taxes, maintenance and cleanup fees, code violations and even demolition costs. Because unoccupied homes are frequently targeted by thieves and vandals, they may deteriorate quickly, making the homeowners' problems even worse.

Legal help for Pennsylvania real estate disputes

Pennsylvania residents who have fallen behind on their mortgage payments and are facing the threat of foreclosure are encouraged to discuss their rights and legal options with an attorney. An experienced real estate lawyer can help distressed Pennsylvania homeowners determine the best course of action for their specific circumstances and will work hard to make sure that their legal rights are protected.