Zombie Titles: You Need to Know About These!

Zombie Titles-You Need to Know About These- 150x150Many Americans ended up having their homes foreclosed by lenders after the recent recession. Losing a home is a painful experience for the owners and an expensive one for lenders. That’s why sometimes lenders would send out a foreclosure notice, but don’t actually go through with the foreclosure. Normally, when home owners receive the foreclosure notice, they pack up and move out, thinking that the bank will take their home from them. This is not always the case, as sometimes banks don’t follow through with the foreclosure and the title ends up remaining in the name of the home owner who just abandoned his home, thinking the bank was going to take it as it happens in the foreclosure process.

Lenders are not legally required to foreclose on a property when the home owner defaults, and are also not obligated to notify the home owner that they have decided to dismiss the foreclosure, even after the foreclosure notice has been sent out. Lenders choose to sometimes dismiss foreclosures because of the high cost associated with a foreclosure or if they have a surplus of inventory.

You Own the Home Until It is Sold

Just because you choose to leave a home doesn’t mean that your name won’t be on the title anymore and you won’t be responsible for the home anymore. In this case, even if the lender sends out a foreclosure notice, you will still own the home until it is sold at a foreclosure auction by the bank.

Walking away from your home once you have been notified of the foreclosure is not enough to stop being the legal owner of the home. It is your responsibility to see the foreclosure process through, and make sure that your lender didn’t just dismiss the foreclosure and you left the home while still owning it.

A Zombie Title Can Be a Big Financial Burden

After receiving the foreclosure notice, you may have chosen to abandon the home, and move on. Foreclosure will negatively affect your credit score and ability to buy a new home, so renting will probably be your best option. But, if you haven’t made sure that the foreclosure process is finished, you might end up finding out that you still own a home. This can happen months after you thought that you have lost your home for good.

An unoccupied home can become a target for thieves and fall into disrepair. Besides still being responsible for paying taxes on your property, you will also be held liable by the municipality or local government for repairs and maintenance on the property. You will most likely have to pay penalties and fees for leaving the home to fall into disrepair and ruining the overall atmosphere of the neighborhood, even potentially facing legal action.

How Can You Protect Yourself Against Zombie Titles?

The easiest way to make sure that you don’t end up with a zombie title that can make your life even more difficult than a foreclosure would is to make sure that the foreclosure process is completed. Leaving your home once you receive the foreclosure notice is a bad idea. You can still live in the home until your lender sells it, while having the opportunity of making sure that your lender actually goes through with the foreclosure.

Foreclosure is hard on anyone, and it is followed by having to find a new home and years of working on repairing your credit score. But before you start to rebuild your credit and find a new place to live, you should make sure that your home is actually foreclosed on. Having a zombie title on your hands will only attract more financial losses and headaches. So start researching what the foreclosure process entails and avoid a messier situation than the one that you are in already.

Walking Away from Your Mortgage: The Consequences

Walking Away from Your Mortgage- The Consequences- 150x150Financial strain from the recent economic crisis, an illness, a job loss, or even divorce can lead to foreclosure. Millions of Americans have lost their homes to foreclosure over the past few years, and it’s never a pleasant experience. Losing a home can be very discouraging, and even depressing. However, there are some who choose to walk away from a mortgage on their own, even when they are able to make the payments. This comes with some serious repercussions, but it’s sometimes a better choice than keep making mortgage payments.

When Does It Make Sense to Walk Away from Your Mortgage?

Even if some consider walking away from your mortgage morally wrong, making those large monthly payments after home prices have dropped significantly makes many home owners wonder if maybe they should just stop paying their mortgage. Their properties are worth much less than when they took out their mortgage loan, but monthly payments have remained the same.

Generally, home owners who are considering walking away from their mortgage, also known as strategic default, are people with a good credit score who can afford to keep making payments on their mortgage, but decide to stop from a business point of view. Their home becomes a bad investment, so walking away from their mortgage seems like a better choice. This choice, however, comes with a few negatives, which may outweigh the pros, depending on each individual’s financial situation.

Consequences of Walking Away From Your Mortgage

Strategic default may sound like a good idea, but there are some things to keep in mind before going down that route. Here are the most important consequences of walking away from your mortgage:

  • Your credit score will drop significantly. Whether the foreclosure on your home is voluntary or not, your credit score will be deeply affected. The default will remain on your credit report for up to 7 years and will interfere with your chance of getting another mortgage loan, making it near impossible. An alternative to strategic default would be a short-sale, which won’t do as much damage to your credit score. Dealing with a low credit score can be difficult, as it might interfere with your ability to rent a home or to make other large expenditures that require credit checks.
  • Your taxes will still be due. The Internal Revenue Service will view your unpaid debt as income and expect you to still pay taxes on it. Depending on when you defaulted, you may be covered by the Mortgage Forgiveness Debt Relief Act of 2007, which protects you from federal taxes after your strategic default. However, other taxes, such as state taxes, may still have to be paid.
  • You could be liable for a deficiency judgment. When your home is foreclosed on, the amount owed will usually be larger than the foreclosure sale price. The difference between the two is called a deficiency and, depending on your state laws, your lender may sue you to recover that difference.

Planning ahead before deciding to walk away from your mortgage is essential if you don’t wish to encounter some serious problems in the future. Many people who choose to do a strategic default open high credit card accounts, or buy another home before letting go of their current home. Living with damaged credit will be hard, so taking some precautions before walking away from your mortgage will save you some trouble.

Walking away from your mortgage can have serious consequences, like destroying your credit score, not being able to obtain a new mortgage loan, or being sued by your lender. Before considering a strategic default, make sure that you are fully aware of how this will affect you and your financial situation. If you decide that this is your best option, then carefully plan ahead so you don’t encounter any major issues down the road.