Will Bankruptcy Kill A Zombie Deed?

A Zombie Deed is a piece of real estate that you thought was gone, foreclosed, lost forever and no longer yours, but to your dismay, you find that you still own the property long after you thought it was gone.

For example, you know you have missed mortgage payments and you know that your mortgage lender would not give you the mortgage modification that you thought would help you save your home. Foreclosure has started and you have moved from the home to beat the court marshals from forcibly moving you out. You may have also filed bankruptcy to discharge the obligation of the mortgage debt and avoid the possibility of any deficiency judgment making you responsible for the difference between the value of the home and the debt.

But none of this helps you until the title to the house leaves your name and goes to the bank. That means that the foreclosure action has completed and the property has been auctioned or that a Surrender of Real Estate in bankruptcy has been recorded on the land records where the property is located.

There have been a number of cases where the bank had changed direction after starting a foreclosure and stopped just short of completion. The homeowners never find out about it because they have left the property in anticipation of the foreclosure. But the bank has decided that it has too many houses in inventory, or that the home isn’t worth the cost of pursuing it, or that there are title problems caused by improper paperwork. With over 5 million foreclosures in the last three years, these things happen. Or in other cases, the homeowners have filed bankruptcy and thought that the bankruptcy discharged somehow. While bankruptcy does discharge the debt, it does not remove the lien from the property or act to transfer title.

The consequences of a Zombie Deed means that you remain responsible for the priority taxes and homeowner association charges. You remain responsible for the condition of the property which may cause a nuisance for trash, overgrown vegetation, or vandalism. Worse yet, if someone gets hurt on that property, you could be sued for the injuries; all when you thought it was long gone. In short, do not assume you have taken care of everything by walking away from your home.