I wrote about a year and a half ago about the problem with “vampire properties.” Vampire properties are homes where the lender has foreclosed, but never bothered to take possession of the property because it costs more to evict and rehab the property than they could generate by selling it. The former owners simply continue to live there. Not surprisingly, they don’t maintain the property adequately, and of course they don’t pay taxes or insurance.
There are fewer of those these days, but they still exist in weaker markets and hold those markets down.
However, while the number of vampire properties may be declining, their creepy cousin “zombie foreclosures” are now on the rise. Let me explain.
Zombie foreclosures are homes that are in foreclosure where the owners gave up possession. Often the properties sat for years while the owner made no payments because the lender did not want the liability of maintaining the property if, upon foreclosure, they could not get much out of it in a weak market.
With rising values lenders are now seeing the possibility of a better return, and they are moving forward on foreclosures where the market supports it. When that happens, homeowners that have been living free for some time will often abandon the property immediately, and move on, because they now know they are not going to work out something with the lender, and they have no incentive to maintain the home.
These homes then become zombie foreclosures – homes not yet owned by the bank but not occupied and not being maintained by anyone.
According to Ruth Montrell, an economics reporter for Marketwatch. “These foreclosures, involving homes vacated by owners, rose over the past year in half of the 183 metro areas followed by online foreclosure marketplace and data provider RealtyTrac.”
It is counter-intuitive that the market could be as strong as it is and yet the number of these foreclosures is increasing rapidly. But these homes may represent the last cases precipitated by the housing collapse – homes that would have been foreclosed on long ago had the market rebounded more quickly.
Montrell goes on: “Zombie properties cause a variety of problems. The empty homes frequently devolve into eyesores, hitting neighborhood property values. Banks don’t like them because the loans are non-performing assets. And governments miss out on tax revenue.”
Cities with very high numbers of zombie foreclosures include L.A., Houston, Trenton, NJ and Tampa, FL. New Jersey and Florida are in states where the foreclosure process can be lengthy, and the longer the process the more likely the owner is to simply walk away.
Will Zombie foreclosures hold back the real estate recovery? When zombies start taking over cities it’s always a scary time, but it is also a good sign – a sign that the banks believe the market in those cities is roaring back to life. Keep your eyes out for zombies…
For Ms. Montrell’s full article, click here.