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Foreclosure processPre-foreclosure

Zombie Property

Also called Zombie foreclosure, Zombie home

In short

A zombie property is a home the owner has vacated during foreclosure, but where the lender has not completed the foreclosure, leaving it empty with the original owner still holding title.

Who holds title
The original owner
Who lives there
No one; it is vacant
Common problems
Neglect, code violations, vandalism
State response
Some states require lender upkeep

Where it fits in a foreclosure

Zombie Property belongs to the pre-foreclosure stage.

  1. 1Missed paymentsThe owner falls behind; the servicer sends notices and may offer workout options.
  2. 2Pre-foreclosureA notice of default or lis pendens is filed. The owner can still sell, catch up or negotiate.You are here
  3. 3AuctionThe property goes to a public sale, usually for cash, as-is and often without an inspection.
  4. 4Bank-owned (REO)If no one outbids the lender, it takes the property back, clears most title issues and lists it.
  5. 5ResaleA buyer or investor purchases, repairs and occupies, rents or resells the home.

How a home becomes a zombie

Owners who receive a notice of default or foreclosure lawsuit sometimes assume they must leave right away and move out. If the lender then delays or abandons the foreclosure, for example because the property is worth little, the house sits empty. The owner is still legally responsible for taxes, code violations and the mortgage.

Problems for neighborhoods and owners

Vacant homes can deteriorate quickly, attract vandalism and drag down nearby values. Unpaid property taxes can lead to a tax lien, and municipalities may add liens for code enforcement or maintenance. Some states have passed laws requiring lenders to inspect and maintain vacant homes in foreclosure or to speed up the process; the rules vary by state and city.

Buying a zombie property

Because the owner still holds title, a buyer must deal with the owner, often through a short sale if the debt exceeds the value. Finding the owner can take work. Expect extensive repairs and several layers of liens, so a careful title search is essential.

Example

Untangling a zombie property

A vacant home worth about $120,000 as-is has a $150,000 mortgage, $6,000 in unpaid taxes and a $3,500 city lien for lawn mowing and board-up. The lender stopped the foreclosure two years ago. An investor tracks down the owner, who agrees to a short sale at $105,000. The lender approves, and the taxes and city lien are paid from the proceeds at closing so the investor gets clear title.

Zombie Property vs. REO / Bank-Owned Property

Zombie Property

A zombie property is a home the owner has vacated during foreclosure, but where the lender has not completed the foreclosure, leaving it empty with the original owner still holding title.

REO / Bank-Owned Property

An REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.

The differenceAn REO is owned by the lender after a completed foreclosure. A zombie property is still owned by the borrower because the foreclosure was never finished.

Frequently Asked Questions

Related terms

Pre-ForeclosureForeclosure processPre-foreclosure is the period after a lender files a default notice or foreclosure lawsuit but before the property is sold at auction. The owner still holds title and can sell or catch up.Short SaleForeclosure processA short sale is the sale of a home for less than the amount owed on its mortgage, with the lender's approval. The lender agrees to accept the reduced proceeds to avoid a foreclosure.Tax LienTitle & legalA tax lien is a government's legal claim against a property for unpaid taxes. Property tax liens usually take priority over mortgages and can lead to a tax lien certificate sale or tax deed sale.LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.Cash for KeysForeclosure processCash for keys is a payment a lender or new owner offers to occupants of a foreclosed property in exchange for moving out by a set date and leaving the home in agreed condition, avoiding eviction.ForeclosureForeclosure processForeclosure is the legal process a lender uses to take back and sell a property after the borrower stops making mortgage payments, so the lender can recover what it is owed.Title SearchTitle & legalA title search is a review of public records to confirm who legally owns a property and to find any liens, judgments, easements or other claims that could affect ownership.Real Estate WholesalingInvestingReal estate wholesaling is putting a property under contract at a discount and then assigning that contract, or reselling the property, to another investor for a fee, without renovating it.

Learn more in the knowledge base

How to Buy a Pre-Foreclosure Home: A Step-by-Step GuideGuide · 6 min readBuying a pre-foreclosure means negotiating with an owner who is behind on the mortgage, before the lender sells the home at auction. The deal can close as a normal equity sale or as a short sale that needs the lender's approval. This guide walks through each step, from research to a clean closing through escrow.Title, Liens and Due Diligence on Distressed PropertiesGuide · 9 min readDistressed properties often come with debts and paperwork problems attached. A title search, a clear understanding of which liens survive a sale and the right title insurance protect you from inheriting someone else's obligations. This guide explains what to check and when.How to Find and Screen Pre-Foreclosure PropertiesGuide · 6 min readPre-foreclosure leads come from public filings, so anyone can find them. The real work is narrowing a long list to the few properties worth your time. This guide covers where the filings are recorded, how to use a listing service, and how to screen each lead for equity, timeline and occupancy before you contact anyone.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.