Zombie Foreclosure: What Is it and How Can it Be Fixed

• Jurisdiction: California,United States
• Author: Written by Ryan Griffith, Esq.
• Citation: Vol. 2022 No. 3
• Publication year: 2022

ZOMBIE FORECLOSURE: WHAT IS IT AND HOW CAN IT BE FIXED

Written by Ryan Griffith, Esq.

Zombie foreclosures became a major issue after the mortgage crisis, and zombie foreclosures continue to plague neighborhoods today. This is evident by numerous law schools publishing journal articles on zombie foreclosure, UC Irvine School of Law,⁰¹ University of New Mexico School of Law,⁰² University of Washburn School of Law,⁰³ University of Emory School of Law,⁰⁴ Boston College School of Law,⁰⁵and Lincoln Memorial University School of Law,⁰⁶ to name a few. This article will explain the legal tools that California banks, cities, counties, and homeowners can use for zombie foreclosures and to improve neighborhoods throughout California.

Even though zombie foreclosures are a common occurrence, most people are unaware of what they are, yet alone how to deal with them. A zombie foreclosure starts as a normal foreclosure, when a bank issues a notice of default to a homeowner for missing mortgage payments.⁰⁷ What differentiates a zombie foreclosure from a normal foreclosure is that a property can remain vested in the original owner for years, while a bank in a normal foreclosure takes the title shortly after the bank issues the notice of default.

Often the owner of a zombie foreclosure believes the bank foreclosed and owns the property, but that is not the case.⁰⁸ In zombie foreclosure cases, the owner is left on the hook for the property taxes, property insurance, and other property maintenance responsibilities, which the owner usually cannot afford. The property then falls into disrepair and the owner commonly abandons the property assuming the bank will or has already taken it over.⁰⁹ Once the property is left vacant, it is often overrun by squatters that engage in drug use and/or other criminal activity. Furthermore, the water, electricity, and other services are shut off at the property. The squatters then live en masse at a property without running water, power, and other necessities. The people living in these unsanitary conditions then endanger the surrounding community. The squatters also often have hoarding and other mental health conditions that further blight the surrounding neighborhood.

Once the property falls into such a state of disrepair, the bank, neighbors, and city point the finger at the record property owner.¹⁰ It is not uncommon for the already financially struggling property owner to face fines and even misdemeanor charges for failure to maintain their property.¹¹ In 2013, Reuters estimated that 301,874 homes in the United States were zombie properties.¹² These zombie properties burden the police and fire departments, reduce property values, and become crime magnets.¹³

A hotbed of zombie foreclosures was the City of Vallejo, which was one of the largest cities in America to file for bankruptcy in 2008 during the height of the mortgage crisis.¹⁴Even before the municipal bankruptcy, housing prices were plummeting and numerous people were abandoning their homes.¹⁵ Of course, the municipal bankruptcy only exacerbated these conditions.¹⁶ As a result, horrific homes emerged in the municipality.

One Vallejo home became the site of substantial squalor where criminals would bring back kidnapping victims, engage in hard drug use, and engage in all sorts of nefarious

[Page 31]

activity.¹⁷ The neighbors grew so angry they overtook a city council meeting begging for something to be done. This was the classic zombie foreclosure situation, because the owner had abandoned the property after he filed chapter 13 bankruptcy thinking his mortgagor, Bank of America, would foreclose on his property.¹⁸ Of course, once conditions became so dire, the owner had no resources to take back the property, but Bank of America claimed rightfully that he remained the record owner and was responsible for maintaining the property.¹⁹ Eventually the property was placed into a Health and Safety Receivership by the City of Vallejo, pursuant to Health and Safety Code section 17980.7, and Bank of America...