The market crash of 2008 produced thousands of foreclosed properties across
the nation, with many sitting vacant for years. Some of the hardest hit
neighborhoods found banks sitting on hundreds of foreclosure properties
while lawsuits or claims worked their way through the system. These properties
became vacant and fell into disrepair and soon became known as “zombie
It appears now that with zombie stockpiles near an all-time high, banks
have finally decided to liquidate the properties and have been selling
them off at a record pace. Real estate experts have noted that with new
zombie foreclosure laws coming on the books in many states, combined with
low-interest rates and a shortage of homes, the market is ripe for this
type of bank sell-off.
The numbers are a little misleading considering the amount of vacant foreclosures
has dropped nine percent from a year ago, yet the amount of bank-owned
vacant properties has increased by over 67 percent, according to ATTOM
Data Solutions. The group formerly known as RealtyTrac has indicated that
there are an estimated 46,000 zombie foreclosures still lying dormant.
While it seems odd that there are this many vacant homes in the midst of
a hot housing market, keep in mind that many of the homes are in less
than desirable neighborhoods. The properties that reside in the hottest
housing markets have likely been already snapped up – zombie or
not. But a decrepit house in a non-desirable area may not attract investors
or homebuyers anytime soon. All market indicators show that we are reaching
the top of another mortgage bubble. Investors will start shying away from
the purchase of properties that may need thousands in repairs unless they
can buy at a price far below what the market bears.
The numbers appear to indicate the majority of zombie foreclosures are
located in and around large urban centers, such as New York, Atlanta,
and Chicago. While a substantial inventory of bank-owned properties would
seem like a boon for real estate investors, these areas may have to wait
until the market cools, the neighborhoods improve, or the bank decides
to lower the bar on price. Demand may be high, but so is risk aversion.
Investors will likely sit on the sidelines or look for greener pastures
for which to place their investment capital.
Even though the zombie population has declined nationwide, certain areas
see the numbers holding steady or even slightly increasing. States such
as California and Florida saw a drop in zombie numbers over last year,
yet New York, New Jersey, and Massachusetts saw a slight increase in bank-owned
In a market where there seems to be an extreme housing shortage, one has
to ask the question as to why there are so many unsold REOs? That question
can best be addressed with the condition of the property. Savvy investors
typically consider properties in any area when making a decision to purchase,
as long as there is a profit to be had. This strategy indicates that the
remaining vacant REOs have already been looked at and passed over. That
would lead one to believe that these properties are simply the “worst
of the worst” with regards to investment.
First-time homebuyers or consumers looking for a “fixer” would
seemingly be good candidates for these types of properties, yet lending
guidelines from banks and government-backed mortgage enterprises restrict
lending on properties until repairs have been made. This conundrum leaves
REO banks with the option of investing thousands into properties they
may have already taken a bath on, or simply let the homes sit and hope
for a cash buyer down the road. The result is apparent in states such
as Michigan and Georgia where the expedient non-judicial foreclosure process
has produced a glut of vacant bank-owned homes in such disrepair that
they will not even attract investment buyers.
Taking all market indicators into account, it appears that banks have finally
gotten the memo – dump the zombies. Banks across the country are
now working with local realtors to attempt to find buyers for some of
the worst zombies in their inventory. In evaluating the price of these
properties, banks are apparently taking into consideration that the cost
of doing nothing may now include penalties and fines from local or state
governments. As the pressure from communities to clean neighborhoods of
zombie properties mounts, investors will stand-by waiting until the bank
sees no alternative but to unload the properties for well below market prices.
Contact Geraci Law Firm at (949) 298-8050 today, or contact NemaDaghbandan
for more information.