Published October 2016.
Somehow I managed to avoid the whole zombie and vampire craze completely. I don’t watch “The Walking Dead.” I’m not that into vampires either, so I didn’t watch “True Blood” or even “Buffy the Vampire Slayer.”
But as a homeowner, there is one thing that fills me with dread: The idea that we could find out that we don’t really own our home…because it’s a (cue scary music) zombie foreclosure.
It’s not likely, but it does happen.
What is a Zombie Foreclosure?
A zombie foreclosure happens when a foreclosed-upon homeowner moves out of the property, but the foreclosure process stalls. Maybe the lender cancels the foreclosure or never holds a sale of the property, and so the new owner never officially receives the title. There are many reasons a zombie foreclosure occurs. They’re especially prevalent in states where the process takes a long time, like Florida and New Jersey.
The problem for the owner, of course, is that because the title hasn’t changed hands to the bank or a new buyer, he or she still officially owns the property and has to pay taxes, keep the home up to standards of state and local laws, and fulfill other homeowner obligations. Owners may think they’ve washed their hands of the property, only to have it come back to haunt them.
Meanwhile the home sits there unoccupied, falling into disrepair, attracting squatters and blight, and lowering property values for the community.
The Chance You’ll Buy a Zombie Foreclosure? Slim.
Luckily, the number of foreclosures in the United States has dropped significantly. ATTOM Data Solutions, the parent company of RealtyTrac, reported that there were 293,190 U.S. homes with foreclosures filings in the third quarter of 2016. That number is down 10% from a year ago, and it’s the fourth consecutive quarter where foreclosure activity has decreased. Even better, foreclosure timelines are getting shorter.
“While we’ve known that the national foreclosure problem has been dying a long, slow death for quite some time, the final nail in the coffin of the foreclosure crisis is the year-over-year decrease in the average foreclosure timeline nationwide,” says Daren Blomquist, executive vice president of ATTOM Data Solutions.
Of the homes in foreclosure, 18,304 (4.7%) are vacant (which ATTOM considers a zombie foreclosure), a decrease of 5% percent from the previous quarter and down 9% percent from Q3 2015. It’s worth noting that it can be difficult to tell whether a vacant home equates to a zombie foreclosure, because the statistics don’t indicate whether the homeowner thinks that he or she doesn’t own the home anymore.
If you’re an investor or homebuyer, the only way to tell is to do a thorough title search during your due diligence to find out who owns the title and whether you have the right to purchase it.
The good news: You’re less and less likely to fall victim to a zombie foreclosure, because the banks are ridding themselves of their foreclosure inventories. ATTOM’s numbers indicate that as of the end of the third quarter, there were 46,604 vacant bank-owned (REO) residential properties, up 67% a year ago. This indicates that properties are completing the foreclosure process—and are less likely to sit vacant.
Vampire Foreclosures: A Shadow Market
Perhaps less threatening are “vampire foreclosures,” sometimes called vampire REOs. In these situations, the bank forecloses and even owns the property, but the homeowner hasn’t left. The foreclosure may have happened so fast that the homeowner hasn’t had time to vacate the home. In other cases, the bank may have simply lost track of which foreclosures are occupied and which aren’t.
Even though a vampire foreclosure may look good on the outside because the owner is maintaining the property, in truth it’s sucking the lifeblood out of the housing market. The home should be on the market, but it’s not; it thus keeps supply low, driving housing prices artificially higher. When the banks finally do decide to sell these types of homes, they’ll flood the market, driving home prices down and slowing the recovery of the housing market.
However, you still might be able to buy such a home and keep the occupants on as tenants. In any case, talk to a qualified real estate professional or lawyer first.
So what’s the silver bullet to vampire and zombie foreclosures? As I mentioned before, do your due diligence. Research the title. Know your rights and responsibilities as a prospective investor. Don’t make any rash moves, and you just may put those zombie and vampire homes to rest.
About the Author:
Cynthia Badiey
Cynthia Badiey is a writer and author who has written about everything from real estate to cloud computing, private aviation and educational technology. She has written blog posts for Ten-X, Auction.com, XOJET, NetSuite and Sun Microsystems. An experienced marketing professional, Badiey is the principal of Comma Writer, LLC, which specializes in content creation and strategy, marketing communications and writing. You can reach her on Twitter at @cynthiabadiey.
