Interestingly, the number of zombie foreclosures has increased despite the federally-imposed foreclosure moratorium of 2021. This moratorium was issued to protect homeowners suffering economic hardships due to the COVID-19 pandemic. It bars lenders from foreclosing on delinquent property owners that have government-backed loans.
In this article, we will define zombie foreclosures, explore their pros and cons, and learn where you can find and analyze a zombie property.
What Are Zombie Foreclosures?
A zombie foreclosure is a situation where a property owner vacates their home shortly after being served a foreclosure notice, expecting that they will lose their home. The homeowner assumes that their home has already been seized by the lender or bank. However, for various reasons, the foreclosure might be canceled, leaving the property in the name of the homeowner.
In simple terms, zombie foreclosures happen due to the property owner’s misunderstanding of the foreclosure process. In a normal foreclosure, property owners get a notice from the lender informing them that the home is entering foreclosure. Once this notice is issued, there is a mandatory waiting period when the property owner can pay a lump sum of money and pull out of the foreclosure. If the homeowner doesn’t make the payment, the process will go on and the court will decide that the property legally belongs to the lender. It is at this point that the owner will be required to vacate the home.
At times, the lender might choose not to complete the foreclosure. One of the reasons could be that it would be too expensive to pay back taxes or repairs. Since the lender is under no obligation to inform the homeowner of this, the title of the home remains in the name of the original owner. It is referred to as a zombie title.
Pros and Cons of Buying Zombie Foreclosures
Buying a zombie foreclosure comes with the following benefits and drawbacks:
Pros of Buying a Zombie House
- Potential discounts: Zombie foreclosures often come with deferred maintenance or even outright damage. Taking into consideration the defects in the property, you can negotiate a lower price with the seller. Buying distressed properties for sale is, therefore, more affordable compared to purchasing traditional properties. If the property is in a good neighborhood, renovating it could easily increase its value above local market value
- No evictions: Another great thing about zombie houses for sale is that there is no one to evict. There are no homeowners to negotiate cash for keys with. There is also no risk of further damage to the home when occupants vacate. This could save you thousands of dollars since you don’t have to pay legal fees. It also saves you time, considering that cash for keys or eviction can take weeks or even months
- Better visibility: Buying vacant properties allows you to see defects that would otherwise be hidden under rugs, behind furniture, or behind cartons in the garage or basement. Concrete damage, water leaks, and structural issues are some of the things that will be visible because the property is vacant
Cons of Buying a Zombie House
- Property damage: A major downside of abandoned homes is the acceleration of decay that happens over time. You will encounter things like foundation problems, hoarder houses, gutted bathrooms/kitchens, insect infestations, black mold, concrete in drains, caved-in roofs, and even dead animals. Even though you might buy the home at a discount, fixing these problems can be very costly
- No disclosure: When buying a home in foreclosure, you are not likely to get any disclosure signed by the absentee property owner. In fact, the homeowner is not legally obligated to disclose any defects they know of. You will be dealing with a lender who doesn’t know much about the state of the property
- Security concerns: Abandoned homes attract vagrants and squatters. Therefore, you might have to take legal action or call the police for eviction after buying the property. Vacant homes also attract vandals who can cause significant damage
Where to Buy a Zombie Foreclosures 2021
Planning to invest in foreclosed homes? Here are some of the places where you can find the best deals for zombie foreclosures:
Foreclosure Listings
There are several sites that offer free foreclosure listings. This includes Equator.com, HomePath.com, HomeSteps.com, Realtor.com foreclosures, Zillow foreclosure center, and Wells Fargo REO properties. You can also get foreclosure listings from subscription sites like Foreclosure.com and RealtyTrac.
Bank Websites
Banks usually list their foreclosed homes for sale online. For example, Bank of America has hundreds of listings in states such as California, Florida, Maryland, Missouri, Tennessee, Louisiana, Kentucky, and New Jersey. Home descriptions, prices, and photos are listed, as well as agents’ contact details.
Government-Owned Listings
One of the best places to find foreclosed homes is on The Department of Housing and Urban Development (HUD) website. Once you find a property that you would like to buy, you can make an offer via the real estate agent representing the property. Other government listings to consider include HomeSales.gov, USDA-RD/FSA Properties, and IRS seizures.
Drive for Dollars
You could simply drive around the neighborhood and look for properties that appear vacant. Common signs of abandonment include chipped or faded paint, structural damage, overgrown grass, boarded windows, and uncollected mail. When you come across such a property, write down the address and find out who the owner is. Don’t forget to look out for real estate signs like ‘Bank Repo’ or ‘Foreclosure’ as you drive around the neighborhood.
Related: A Guide to the Driving for Dollars Real Estate Strategy
Auction Houses
Auction companies usually hold major foreclosure auctions, at times even selling hundreds of homes in a single day. Some of the most popular auction houses include Williams and Williams, J.P. King, and Bid4Assets. However, the challenge with real estate auctions is that you will have to buy the home as-is.
Related: Real Estate Auctions: Everything You Need to Know
Mashvisor Property Marketplace
The Mashvisor Property Marketplace allows you to access a wide range of properties including short sales, foreclosed homes, bank-owned homes, and tenant-occupied rentals. You can narrow down your search using filters like budget, miles, location, listing type, rental strategy, desired cap rate and desired cash on cash return.
Besides helping you find the best homes for sale, the Mashvisor Property Marketplace also helps you analyze the investment potential of any property. Using the Investment Property Calculator, you can estimate the startup costs, monthly expenses, occupancy rate, rental income, cash flow, cap rate, and cash on cash return. You can also enter the address of any property in the US in order to analyze it.
Related: Mashvisor Property Marketplace: A Guide for Real Estate Investors
Conclusion
America is experiencing a rise in zombie foreclosures in 2021. One of the main reasons for many foreclosures in 2021 is the economic hardship caused by the coronavirus pandemic. While this is bad news for homeowners, it is a promising trend for real estate investors. If you do your homework, you can make profitable investments during this wave of zombie foreclosures.
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