Halloween isn’t here just yet, but the zombies are already multiplying by the thousand — zombie foreclosures.
After having left the worst remnants of the housing crash in foreclosure limbo-land, banks are now taking those vacant, foreclosed homes and selling them at a fast clip. They are the so-called zombie foreclosures.
The result is that the numbers have shifted. Vacant homes in the foreclosure process are expected to drop 9 percent in the third quarter from a year ago, but vacant bank-owned properties are expected to jump 67 percent during the period, according to ATTOM Data Solutions. There are now just over 46,600 vacant bank-owned properties (known as REOs) littering neighborhoods nationally.
“We believe it’s a combination of market conditions that are ideal for selling properties, along with political pressure for banks to deal with these properties and not allow them to linger in foreclosure indefinitely,” said Daren Blomquist, senior vice president at ATTOM (formerly RealtyTrac).
More low-priced homes would seem to be a windfall for a housing market plagued with extremely short supply, but that is not the case. The vast majority of these zombie foreclosures are in the least desirable markets for investors. New York, Philadelphia and Chicago have the highest number of vacant foreclosures, but they are in some of the most troubled areas economically. The homes are also in terrible disrepair.
As a comparison, San Jose, California, one of the nation’s most desirable housing markets, has a vacancy rate of just 0.2 percent, compared with Flint, Michigan, which has a rate of 7.1 percent. There are likely no zombies in San Jose because there is simply too much demand for anything with four walls. Other markets will have to wait.
“Eventually there will be demand. Some investor will be interested in these properties given the environment we’re in and also more interest in the urban infill type of developments,” said Blomquist.
But only with significant investment. There is plenty of demand from home flippers and landlords looking for great deals, but they get most of the good properties the courthouse auction.
“We have seen more properties selling at the initial foreclosure auction. They don’t become REOs,” said Rick Sharga, executive vice president at Ten-X, a real estate auction platform. “We are also seeing more rapid movement to sell REOs if those courthouse auctions don’t work.”
That means the homes that are left, the zombie foreclosures, must need thousands of dollars of work to make them either rentable or sellable. Government-backed mortgage entities like Fannie Mae and the FHA have strict lending requirements when it comes to distressed properties.
“Imagine a zombie foreclosure that’s been vacant two to three years somewhere in the Northeast now becoming a bank-owned property. That is not for a first-time homebuyer and maybe not even for an investor. These are not properties that are going to fix the inventory problem, at least not when they are first repossessed,” added Sharga.
Real estate agent Edward Augsberger has been working the Jersey shore over a decade, but only now is he trying to sell some of the worst properties he’s ever seen.
“It’s crazy some of the numbers. I’ve sold some things in Atlantic City for $3,000,” he said.
The properties are scattered throughout neighborhoods all down the coast. After the housing crash and then major flooding from Hurricane Sandy, a lot of people just walked away. New Jersey’s slow judicial process kept many of these homes in limbo for years, and they are just now coming to market.
“What you see is a handful of investors waiting for the property to get to that sweet-spot number,” said Augsberger. “Anything will sell if it’s priced right.”