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Return of the Zombie Property

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Posted On: 09/11/2013

Question:

You recently mentioned “zombie” properties, foreclosed homes where the lender has not yet taken title to avoid paying taxes, but the borrower no longer occupies or controls the property. Who eventually pays the property taxes?

Answer:

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With a “zombie” property, we have a home that has been foreclosed or where the borrower has sent in the keys – what is known as “jingle mail” among lenders.

To the owner, the lender now owns the property, but that may not be the case. The borrower's name may still show up on official records as the owner, and thus be responsible for property taxes.

Why would a lender delay updating title records? To avoid maintenance, insurance and tax obligations.

The local community, however, still wants its taxes and tax liens to have priority over all other liens, according to Daren Blomquist with RealtyTrac, a real estate data source. This means at some point the property can be foreclosed again for failing to pay the property taxes.

In time, the lender will likely record the title and bring the taxes up to date, bid on the property at a tax auction, sell its interest and claims or lose the property. Losing the property is not a real option since that could lead to a larger loss than paying the taxes.

It might seem that foreclosed borrowers have no reason to protect the lost home, but that is not the case. With their name on the title, they can face property tax claims, maintenance obligations and insurance bills. It could be worse if they have dropped their property insurance and a claim arises.

Work with a local attorney, legal clinic or community housing organization to assure your name is off the title once your relationship with a lender ends.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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