A Zombie Foreclosure happens when owners of a home vacate because they incorrectly believe they have been foreclosed upon, when in fact the foreclosing lender has abandoned the foreclosure. If the lender abandons a foreclosure without telling the original owners, and the owners are under the assumption that they need to vacate and the lender is now responsible for the home, then the property often falls into disrepair and may lower property values in the surrounding community.
In a very similar way to a zombie title, these zombie foreclosures result from a misunderstanding of the foreclosure process by homeowners or a miscommunication between lender and borrower. During a normal foreclosure process, the owner will receive a notice that the home is entering the foreclosure process. After this notice is issued, there is a waiting period during which the owners can pull the home out of foreclosure by paying a large lump sum, or the process continues and the court rules that the house legally belongs to the lender. It is only at this point that the owners are required to vacate, and the owner continues to hold the title to the property until the foreclosure goes through.
Zombie foreclosures can create problems not only for the homeowner, but also for their entire neighborhood as well. If a home has been abandoned in a zombie foreclosure, local authorities will have attempt to recover unpaid taxes or fees, and it can often lead to an arduous process for all of those involved.