The Woodstock Institute, a nonprofit research and policy organization located in Chicago, recently did a study of unresolved foreclosures in Cook County from 2008 to 2012. They call these cases “zombie properties.”
The Woodstock Institute defines a zombie property as a property that has been in foreclosure for more than 3 years and still unresolved. This can be due to the fact that neither borrower nor servicer has clear control of the property, or neither has the incentive to assume responsibility of the property.
“You're stuck in this situation where nobody really has a long-term interest in the property. The titleholder knows it may be taken at any time. The servicer doesn't own it and may never own it. They may release the lien or just let it sit,” said Spencer Cowan, vice president of Woodstock Institute.
Coincidentally their findings uncovered that the majority of unresolved cases were in communities with an average household income less than $49,000/yr and were grouped together, which is holding those neighborhoods back from recovery.
Cowan added, “Zombie properties will make it harder for Cook County to recover fully from the housing crisis, especially in the neighborhoods where they are concentrated. Zombies introduce an element of uncertainty that poses barriers to returning homes to productive use or finding creative ways to deal with blighted properties.”
From 2008 to 2012, mortgage servicers filed 228,400 foreclosures, according to the study. Of those, Woodstock only studied 134,043 foreclosures in Cook County from 2008 to 2010. 56,000 (42%), of those were sold at auction from 2009 to 2012.
Over 78,000 (58%) did not go to auction at all. They resulted in one of four outcomes:
· The borrower can keep the property by curing the default (bringing the mortgage current), a loan modification, lien release (typically when the entire loan is paid off), or the case getting dismissed (by proving the non validity of the foreclosure).
· The property is transferred to a new owner through a private auction, a sale, or a deed in lieu of foreclosure (voluntary release of title by the borrower to the mortgage servicer).
· The case dismissed and a new foreclosure filed typically when the validity of the foreclosure is challenged and the lender is forced to begin the process all over.
· No resolution is where neither borrower of servicer takes responsibility for the property, in essence both abandoning their ownership interest, hence “zombie property.”
Woodstock went further in their study and did a survey of 500 random foreclosure files. They were able to estimate that 9 of the 77 Chicago communities had more than 100 existing unresolved foreclosures, listing; Ashburn, Austin, Belmont Cragin, Chicago Lawn, Humboldt Park, the Near North Side, Portage Park, Roseland and West Ridge.
Of the suburban communities still within Cook County, the south suburbs were the leader in zombie properties.
"There have been more filings in '11, '12, '13, and they continue. This is a bottom number that people are going to keep adding to," added Cowan.
Benjamin De Los Monteros, of Cherry Picker Investments, a foreclosure auction firm in Chicago, tells us, “according to our proprietary data, there are currently 67,771 foreclosures that were filed from 2011-2013. With all the hype of a rebounding market, many fail to see the big pictures of just how many properties out there fall through the cracks, and that foreclosures aren’t necessarily slowing down anytime soon, especially since banks are more reluctant to close on a short sale lately.”
The Woodstock Institute predicts an additional 4000 to 5000 zombie properties to surface by end of 2015.