Halloween is still yet to come, and this is not some spinoff for The Walking Dead series, but zombie foreclosures are a dreaded problem in the real estate market over the past months. This occurrence opens up a dilemma for all real estate investors as these foreclosed properties really mean trouble. Let’s find out why.
The roots: What is a zombie foreclosure
Zombie foreclosure happens when the homeowner moves out as soon as they receive a foreclosure notice, but the lender or bank has not completed the foreclosure process. The vacated property remains in the homeowner’s name, leaving the property in a state of limbo as a result.
Typically, when a homeowner receives a foreclosure notice from the bank or the lender, it does not mean that they should leave right away. After all, it’s just notice, and it means that the foreclosure process has started. The homeowner can still stop the foreclosure if they can pay for a sum of money, including the missed mortgage payments or the full debt owed. However, it still doesn’t mean that the homeowner should move out if they cannot come up with the money unless the title is returned to the lender or bank, then they are forced to vacate the property, but it can take months to finalize the foreclosure process.
Given that the scenario tells us that the property is vacated as soon as they received the foreclosure notice, what does this mean to real estate investors? How does this impact the property value as a whole? Let’s find that out.
Start of the infection: Implications of zombie properties
When the zombie foreclosed property is abandoned, as if it was left for dead, this creates a situation where the property is left in a state of disrepair. Since the homeowners left the property with no one occupying or caring for it and are not taken over by somebody else yet, the bank or the lender, who are supposed to take over, leave it alone and let the title stay under the name of the homeowner.
At this point, the problem goes even further as one zombie property starts a blight for the other homeowners in the neighborhood. The zombie foreclosed property, which was abandoned, can negatively affect the community. If the zombie foreclosure would be set as a comp, it can decrease the value of other properties surrounding the zombie property.
According to inman.com, as of the third quarter of 2020, 216,000 homes are in the process of foreclosure, with 3.7% of those homes marked as zombie foreclosures. That is a modest 0.7% increase from last quarter, which tells us that these numbers will continue to rise. For the past few months, lenders are prohibited from foreclosing properties based on government-backed mortgages due to the CARES Act. However, that ban was lifted last August 31, which impacted about 70% of the home loans in the U.S.
With this in mind, it just seems that zombie properties are a lost cause. Is it really pointless to buy zombie foreclosed properties? Or is this an opportunity to rise up and “cure” the zombie outbreak that we’re having?
The attempt to the cure: Zombie House Flipping
Yes, you read that right. Zombie foreclosed properties can be flipped. The property is in a state of disrepair, there may be unsafe conditions or health and safety hazards within the property, but these can still be fixed.
As a smart investor, you can see this scenario as an opportunity to grow your real estate investment. Since the zombie foreclosed properties are seen as something that is already lost or no hope to be restored, the competition for these properties is low. Zombie foreclosures can happen anywhere, but these usually tend to occur in lower-income communities, where the properties aren’t in their best shape.
You can capitalize on these properties and try to restore them to their former glory. After all, during this pandemic, people are looking for suburban homes to stay in to get out of the congested cities in metropolitan areas. You can use this as an advantage to check out these zombie foreclosed homes and try to flip them and make a good profit from it.
Now, you may be thinking about the property title, as it remains under the homeowner’s name. To retrieve the title, you can check with different lenders and banks that may have the information about the homeowner, and from there, you can negotiate with the owner to sell the property to you. Real Estate IQ has a county data finder with over 10 million records of searchable data. It can help you with finding the owner of the subject zombie property that you’re looking for to speed up the process of finding the owner and settle the property under your name.
In conclusion: The Risk Worth Taking
With how the zombie foreclosure is painted within the status quo, it is definitely a risk, to begin with. Given that these properties are usually unwanted, it has a low value in the market, meaning you can grab these properties at a lower price. However, as easy to grab these properties, they are also subject to higher risks, meaning that they may not be sold at the value you are expecting.
So it is essential to understand that the risks you will be taking are calculated. By doing so, you can minimize it and make sure you are taking the best path possible with that property investment. Having a set of real estate experts to work with is essential to determine a risk worth taking. Here at Real Estate IQ, we have a community composed of real estate investors and experts, where you can interact with and expand your connection so you don’t have to look out for the people that can help you on your own.
In times of crisis, we should be alert and aware of our surroundings and be vigilant of every opportunity we may take advantage of. To cope up with this so-called zombie foreclosure crisis, we should bring out our survival instinct and take risks if it’s needed. These properties are in limbo, but they can still be saved through fix and flip. The opportunity to get these distressed properties is still something good since every chance is a chance to make a profit.
So gear up with your survival kits and plan out your strategies as you fight off the zombie foreclosures in the real estate industry. Just like what Rick from The Walking Dead series said, “If they can’t make it, we’ll just take this place.”. If others cannot make it to purchase the property or can’t see its value, then it’s just the right time for you to take this place and make use of it.
Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is intended as legal or financial advice.