A Banker's Perspective: 3 Ways to Tell if You Have a Zombie Mortgage

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Scott Schang from Broadview Mortgage, a California based mortgage bank, reviews three ways that homeowners who have let a home go into foreclosure can tell if it will "come back to life" because it was never recorded.

Image credit: <a href='http://www.123rf.com/photo_13681433_zombie-silhouette.html'>renomartin / 123RF Stock Photo</a>
Either way you go, the minute you find out you have a zombie mortgage is the same minute you call the bank.

It’s been a strange real estate market since the big crash of 2007. As home values dropped, the economy followed suit as hundreds of thousands of families experienced challenges which, in many cases, resulted in the eventual loss of the family home.

The recent trend that has been developing are what have come to be known as "zombie mortgages". Where traditionally a mortgage would go into default and the bank would foreclose, now the house is going into default and the house takes years to go into foreclosure. With so many houses in default, the banks should be foreclosing in record numbers.

"At least that’s what everyone thought." says Scott Schang, branch manager for Broadview Mortgage in Orange County, California.

According to the most recent data available from the Federal Housing Finance Agency, the average California home price in the dropped 37% from the first quarter of 2007 to the first quarter of 2009 (FHFA Housing Index, 2010). This is important to note since many of the current problems with zombie mortgages have started to surface in the 2nd Quarter of 2013.

"After falling behind on house payments, eventually the bank will file a notice of default. A notice of default normally means that a homeowner has only a narrow window of time to catch the mortgage payments up or the lender will foreclose on the home," explains Schang.

Upon receiving the notice of default, knowing that foreclosure was imminent, many families vacated the home, surrendering it to the bank to start life anew. In almost all cases prior to 2007, this story would have ended with the bank foreclosing on the home and everyone going their own way.

"That’s what was supposed to happen with all of these underwater homes, sadly it's not. Years later an ugly truth surfaced….the foreclosure was not a foreclosure at all, it was still alive!" says Schang referring to banks that did not follow through with the foreclosure.

"There are three easy and low cost ways to look up your previous mortgage to make sure that the foreclosure went through after you vacated the home" says Schang, "speak to a Realtor or loan officer, visit the county courthouse, or contact a title agent."

According to Schang, Realtors and loan officers are real estate professionals that have access to extensive information via databases. Both have training in how to review and read title reports pulled from county records.

Also, title representatives are able to provide documentation. In some cases however, they may charge for a chain of title report. Usually Realtors or loan officers can obtain this report for free.

For the more independent and studious, a chain of title can be pulled from the county courthouse. In many cases the courthouse records office will charge a fee to print and certify a copy of the title.

"Unfortunately, these zombie foreclosures have gone from a few instances before 2007, to now being a full on zombie invasion after the housing collapse. If your title shows that the bank still hasn't foreclosed, call the bank immediately and try to work something out," advises Schang.

According to Schang, if the bank has not fully foreclosed on the property the person named on the loan can still call to negotiate an agreement. "Your best bet is to ask the bank to cooperate with a deed-in-lieu of foreclosure or a short sale. You may not live in the home, but according to the bank you're still liable for the loan on it." says Schang.

A deed-in-lieu of foreclosure, or simply "deed-in-lieu", is an alternative to foreclosure where a homeowner simply hands the deed to the house over to the bank. Banks tend to favor these over going through the foreclosure, a lengthy and expensive process.

Another alternative to foreclosure is a short sale, in which the bank agrees to release the owner from liability on the loan and settle for a lesser amount than what is owed.

"Either way you go, the minute you find out you have a zombie mortgage is the same minute you call the bank. Time is off the essence and if that foreclosure process does go full scale, your options will grow more limited as time progresses," says Schang.

Broadview Mortgage Corporation is a California based mortgage bank that strives to educate and empower consumers.

Questions? Comments? Contact the author via email or via cell at (714)244-7368.

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Chris Apodaca
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