The Market Is Dealing With Vampire Foreclosures

Over the past six years, the housing market has taken us on a wild and, in some ways, unprecedented journey. One main feature of that journey involved the historic levels of foreclosures that almost wrecked the market but provided savvy investors and homebuyers with an abundance of cheap properties.

Now, a continuation of that trend is impacting the market in a secretive but significant way: vampire foreclosures.

What is a Vampire Foreclosure?

Typically, when a homeowner enters the foreclosure process, he or she is evicted or otherwise leaves the home. Then home then enters a foreclosure auction, where it is either purchased by an investor or homebuyer or left unsold.

At that point, the unsold home reverts to a bank-owned foreclosure, or an REO property. In most cases, the REO property is vacant, so it is put back on the market.

In some cases, however, the prior owners of the home are still there, living in the property. And as one can imagine, a foreclosed home with inhabitants living in it can’t be placed on the market.

The result: more foreclosures that should be on the market and turned back into traditional homes are instead impacting the market and keeping prices lower than they would otherwise be because they’re still negative assets.

Vampire Foreclosures Are More Numerous Than You Might Think

Believe it or not, this phenomenon isn’t limited just to a few homes here and there. An astounding 47% of bank-owned properties are vampire foreclosures. In some states, the percentage is much higher.

Roughly 72% of bank-owned homes in Virginia, for example, are vampire foreclosures. In Nebraska, that number is 68%. These states have short processes and low percentages of homes with negative equity.

These foreclosures are made possible because homes that don’t sell at auction have to be maintained and kept in good repair by banks until they sell, which can become quite expensive. It’s often cheaper to allow homeowners to remain in the property until a suitable buyer is found; this way, costs are kept down for lenders.

Despite the widespread presence of these properties, real estate is still experiencing a surge in activity, and prices are expected to rise over the next year yet again. Strong upward momentum in prices could be enough to offset the downward pressure these foreclosures will have when they eventually come onto the market.

For now, vampire foreclosures continue to live among us.

This can lead to investors chasing deals that cannot even be created as most lenders refuse to consider offers on properties that are not listed with real estate agents and are held in their inventory. Those properties that are still in the redemption period can be obtained by working with the original owner to redeem the property. This has proven to be an effective method for some investors.

In some cases, however, the prior owners of the home are still there, living in the property. And as one can imagine, a foreclosed home with inhabitants living in it can’t be placed on the market.

Where isa this? t bought a house from foreclosure with Squatters, NON-RENT PAYERS, in it. Simple process to go to court and get eviction order and they are out.

Thanks Campbellsimon for sharing the Vampire Foreclosure phenomenon, which is quite an interesting & applicable term.

But, DwayneFoster, what the heck is a Zombie Foreclosure!?

I believe that I can answer that question for you as well.

A zombie foreclosure or zombie home is a property that the homeowner has abandoned and assumed the home has become the property of the lender. Essentially what happens is the homeowner leaves the property after receiving a notice of sale from the lender, and then the home is left empty until the bank acquires the property. This acquisition can take longer than desired and during the period in which the home is not yet owned by the bank, technically the homeowner is still responsible for the property.

Sometimes the homeowner thought the property was foreclosed upon and therefore became the property of the bank. However, they occasionally find out (often years later and without notification) that the bank never took possession of the property and instead the homeowner (who thought they were no longer attached to the home) is notified that they are still responsible for the property legally.

Thanks Simon!

Now I know what a zombie foreclosure is. You’re a wealth of information…

Sincerely,
Charles