Irvine, CA – Zombie foreclosures went up by 3% in the second quarter of 2022 from the first quarter, according to ATTOM.
Zombie Foreclosures Aren’t Undead After All
ATTOM recently released its Vacant Property and Zombie Foreclosure Q2 2022 report. As one of the country’s leading curators of land and property real estate data, ATTOM collects and analyzes real estate data recorded publicly. According to its recent findings, there are now around 1.3 million vacant and abandoned properties across the US. The figure represents 1.3% of homes – roughly 1 out of 76 – across the country.
The same report states that there are 259,166 properties currently going through the foreclosure process in the US. The number represents a 12.7% increase from Q1 2022 and a 15.9% rise from Q2 2021. It also makes it the third consecutive quarter that the pre-foreclosure count went up.
Among the pre-foreclosure properties, 7,569 are lifelessly sitting in the second quarter of 2022. It makes the number of zombie foreclosures higher by 2.8% in the current quarter compared to the previous quarter.
Rick Sharga of ATTOM says that zombie foreclosures tend to be higher in processes that have dragged on for months or even years. The company’s executive VP of market intelligence also says, “We’re now seeing properties where the borrower was already in default prior to the government’s moratorium re-enter the foreclosure process, and undoubtedly some of these homes will have been vacated over the past 26 months.”
However, the actual number of zombie foreclosures only represents a very small fraction of the country’s total stock. Only 1 in 13,171 homes are vacant and in foreclosure in Q2 2022. The figure pretty much means that most neighborhoods do not see such conditions. The share of pre-foreclosure zombie properties is down to 2.9% in 2022’s second quarter from 3.6% a year ago.
The recent uptick in zombie properties is the first one since the nationwide foreclosure moratorium ended.
What Are Zombie Foreclosures?
As creepy as it sounds, zombie foreclosures have nothing to do with the walking dead. They are simply deteriorated small homes that are left vacant by their owners. Generally, these properties are owned by homeowners who are behind on their mortgage payments and just decided to abandon them.
Distressed properties that have been vacant due to mortgage or property tax bill payments problems may face foreclosure. At the same time, lenders have not yet taken ownership of these properties nor have they sold them. In such cases, the lender (usually a bank) does not follow through with zombie foreclosures for a few valid reasons.
One of them is that it might be more costly on the lender’s end to process the foreclosure. It might be because the actual cost is more than what the property’s sale can bring in return. And two, lenders might also be trying to save up on taxes.
Why Do They Matter to Real Estate Investors?
Real estate investors should take note of the market movements because zombie properties are cheap and can be salvaged with enough capital and resourcefulness. Countless investors have struck gold investing in these property types so it’s prudent to not rule them out.
These types of properties can be bought at prices well under the current market value. For those in the fix-and-flip or micro flipping business, these property types have excellent potential for a good return on investment. Even if you just decide to convert them into rental properties, the possibility of turning things around is there. You just need to make sure you don’t spend too much on renovations that it will be difficult to recover your investment. Just because they’re cheap doesn’t always mean they’re investment-worthy.
Investors still need to perform due diligence to know whether zombie foreclosures are worth investing in or not. So before buying a zombie property, make sure to find out everything you can about it. Know its history, background, tax history, and especially, structural issues. Aesthetics are easier to deal with and not as expensive compared to fixing a property’s compromised structural integrity.
Keep in mind that one of the main risks of investing in an abandoned property is that it is no longer maintained. The lack of maintenance compromises a structure’s appearance and integrity, depending on how long it has been vacant. And because these property types are abandoned, they almost always tend to lose market value.
Another risk presented is that not all buyers or tenants are comfortable with zombie properties. It is mainly because of the negativity associated with them. It is especially true for abandoned properties that have a history of illegal or criminal activity.
So before you proceed with your zombie property purchase, you must ensure you do your homework first.
Performing Due Diligence Is a Must
As we already mentioned earlier, when it comes to buying zombie foreclosures, one should perform extensive due diligence. No matter how good you feel about the property, you should never let your emotions get the best of you. It is still wise to back your investment decision with research and analysis.
It can be easily done nowadays using online resources like real estate websites, such as Mashvisor. These websites offer investors access to real estate market data and tools to come up with accurate ROI projections. Some of them have ROI calculators that use the latest market data and real estate comps to compute potential profit.
It is an important step that you should never skip. So, before jumping on a cheap property that you think could make you good money, don’t do so at once. Put in the work first and do some digging on the property and the market it is in. You don’t want your hard-earned money to go down the grave the way these zombie properties have.
Wrapping It Up
Despite the recent increase in zombie foreclosures, the number is still comparatively low compared to where it was last year. The upward overall trend shows how the market could face a possible slowdown for the remainder of 2022. Investors should pay attention to all aspects of the real estate market so they can make better investment decisions. You’ll never know if you can bring a zombie property back into the land of the living.
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