Real Estate Law Journal

State Lawmakers Attack “Zombie Titles”

By Bruce Voss

Hawaii legislators have established new notice requirements to try to cure the so-called “zombie title” problem in the residential foreclosure process.

Zombie titles occur when homeowners move out after receiving notice of a foreclosure sale, but prior to a public sale, the bank or other lender walks away from the foreclosure process and cancels the sale without notifying the homeowner.  When that happens the homeowners still legally own the property, but without a public sale, the foreclosure process is left in limbo.  Homeowners may be saddled with all of the continuing responsibility for a property, including payment of any taxes or association fees, but none of the occupancy rights that existed before the foreclosure started.  Unwitting homeowners can wind up owing tens of thousands of dollars in taxes and fees as the foreclosure process drifts aimlessly along.

Under the new law, the court-appointed foreclosure commissioner must provide notice of the postponed or cancelled sale to the mortgagor, the borrower, and the foreclosing mortgagee.  If the sale is postponed, the commissioner must publish notice of the new public sale date, which can be no sooner than 14 days after the publication of notice.  A copy of the new public notice of the rescheduled public sale must be posted on the mortgaged property, and mailed or delivered to the mortgagor and borrower.

Assuming the new notice provisions are carefully followed by Hawaii foreclosure commissioners, the process should help borrowers who have been left in the dark by lenders who have tried to walk away from foreclosure properties with no equity.

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