I would define it as a property that has been abandoned by both the owner of record and the lien holders. How would you know if the property has been abandoned by the lien holders and the owner? The easiest way to check abandonment is to verify if the property is vacant and if the taxes are current or delinquent. If the property is vacant and the taxes show a delinquency of greater than 2 years then I would assume the lien holder, as well as the owner, have abandoned the property. Zombie foreclosures came into existence because at the bottom of the downturn banks/lien holders faced a problem that they had never encountered before. They were faced with massive foreclosures on properties that were worth less than the cost of the foreclosure process. One way to solve their burden was to write off the properties and leave them in the owner's name. This created a glut of properties that could not be bought or sold due to liens still being attached to the properties, thus creating a zombie foreclosure.

So how does an investor go about purchasing a zombie foreclosure?

Prior to purchasing a zombie property/foreclosure, you will need to perform a title search to understand what liens are attached to the property and owner. Some liens can be easily removed, where as state and federal liens are not easily removed. You will need to contact the owner of record. Once you have made contact, you will purchase the property or have them deed it to you through a quit claim deed subject to the liens. The owner needs to understand that they are still liable for the liens or delinquent mortgages attached to the property even if they have not paid the bank in years. The only time they are not personally liable for the liens is if they filed for a bankruptcy in the past and listed the lien holder as a creditor.

Once you take title to the property, you will need to file a quiet title action against any lien holders on record. This works best if the lien holders are a large bank. A quiet title action is a legal action against anyone or entity that has an interest in the zombie property. A quiet title action by definition requires the named parties to come forward to state their interest in the property. If the named parties do not come forward within the allotted time of the legal action, usually 28 days after being served, then they will lose their right to claim an interest in the property. They will also have their rights extinguished and a judge will sign an order to have the liens released.

This is a high-level strategy that requires a lot of knowledge and some cash as you will not be able to purchase these properties using financing. The beauty of this strategy is that it does not require a lot of cash. Most of the owners in my area (Dayton, OH) have sold their zombie properties for between $250 to $3000 plus the delinquent taxes. The cost of a quiet title action is between $1200-$1500 depending on which attorney you use. Most quiet title actions are won by default judgement due to the lien holders failure to respond or disclaiming their interest after being served the notice. As stated above please contact a real estate attorney before pursuing this strategy. When used correctly a zombie property can be purchased for pennies on the dollar and then the hidden equity can be released via a quiet title action. Good luck and let me know what your thoughts are in the comments section.