Zombie Foreclosures: Reanimated Mortgage Debts

As former homeowners are finding out, “zombies” may not just be after your brains -- they're after your wallets. 

But "zombie foreclosures" are causing endless stress and even fear for people dealing with a home foreclosure.

You'd think the stress of a foreclosure would be enough in itself. But these foreclosures are coming back to life long after they've been buried.

A zombie foreclosure occurs when a borrower believes a foreclosure has taken place on the home, but after taking time to relocate and resettle, learns the foreclosure never really went through and the debt was never forgiven.

CNNMoney reports:

Since the housing bubble burst seven years ago, almost two million properties have started but never completed the foreclosure process, according to RealtyTrac. While no one knows the exact number, it's estimated that tens of thousands could be zombie foreclosures.

This situation is often devastating for borrowers, particularly since it can be months or years before they even become aware that the debt remains in their name.

And because of this time lapse, the debt can also damage the borrowers' credit scores without them even knowing.

This happened to Rose Nathan of South Bend, Indiana, as CNNMoney explains. When she left her home just after New Year's in 2009, she had a “deed in lieu of foreclosure.” She was told a sale was happening soon, and she put it behind her.

But two years later, after she settled in Hawaii, she found out the sale never went through due to a lien on the home—a lien she discovered wasn't even there until it should have been the bank's responsibility.

Though she did everything right, she was still left with the deed to a home she couldn't afford. Her credit score plummeted, her payments are high, and she still can't manage to get a mortgage.

Last year, major mortgage lenders reached a $25 billion settlement with state attorneys. They agreed to provide information of any issue with foreclosure to the borrowers. But so far, this still isn't happening.

Even Christopher Warner, who knew his home was auctioned after foreclosure and should have been relieved of debt, was slapped with an extra $120,000 in debt that deflated his credit score.

These foreclosures just don't seem to die. And major lenders appear to be the ones reanimating the lifeless corpses.