Vampire Foreclosures: When Homeowners Remain in the Home After Foreclosure

In a vampire foreclosure, the homeowner lives in the home after losing it in a foreclosure sale

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Foreclosures are scary in a lot of ways. For one thing, your home could haunt you as a zombie. (Learn more in Nolo’s article Zombie Foreclosures.) Now, in addition to zombie foreclosures, there are vampire versions as well. In a vampire foreclosure, the homeowner remains in the home long after losing the home in a foreclosure sale.

While this type of vampire won’t go after you personally, it could drain the housing market of its lifeblood. Read on to learn more about vampire foreclosures and the harmful effect they could have on real estate prices.

What Is a Vampire Foreclosure?

Typically, when a homeowner goes through a foreclosure, he or she vacates the property. However, sometimes the homeowner stays put. The term “vampire foreclosure” (also called “vampire REO”) refers to the situation where the home has been foreclosed by a bank, but is still occupied by the previous owner that was foreclosed on.

The vampire problem is more prevalent than you might think. According to RealtyTrac (an online marketplace for foreclosure properties and real estate data), 47% of bank-owned homes across the U.S. still have prior owners living in the property. In certain cities, like Chicago, Houston, Los Angeles, and Miami, that figure is even higher at as much as 65%.

Nonjudicial Foreclosure States Often Have Vampires

Certain nonjudicial foreclosure states have a high percentage of vampire foreclosure properties. One reason for this may be due to the fact that nonjudicial foreclosure states have relatively short foreclosure timelines and homeowners tend to have little time to prepare to vacate the home. (Find out more about nonjudicial foreclosures.)

For example, a lot of foreclosed homes in California, which utilizes a nonjudicial foreclosure process, remain occupied by the previous owner and fall into the category of a vampire foreclosure. (Learn more about the California foreclosure process.)

Florida Is Also a Vampire Hotspot

Many vampire foreclosure properties are also located in Florida, even though that is a judicial foreclosure state with a long foreclosure timeline. (Learn more in Nolo’s article States With Long Foreclosure Timelines.) The high number of vampire properties is partly due to the sheer number of foreclosures in the state. Banks can sometimes lose track of which foreclosed properties still have occupants and do not keep up with evictions. (To learn more about foreclosures in Florida, visit our Florida Foreclosure Law Center.)

(If you want to learn more about how many foreclosures and REOs are in your area, and how many might be vampires, you can go to RealtyTrac’s website at www.realtytrac.com to check the concentration of foreclosures by Zip code.)

Vampire Foreclosures Jeopardize the Housing Market Recovery

A foreclosed home that still has occupants living inside can’t be listed for sale. As a result, multitudes of foreclosed homes that should be on the market are not. The short-term impact of this is that housing prices are artificially inflated due to a scarcity of homes for sale, which in turn boosts the overall housing recovery. But these vampire properties lurk as a shadow inventory that will eventually hit the market.

Once that happens (probably when home prices rise even higher thus finally motivating banks to remove the occupants and sell the homes), that will very likely slow the pace of the housing recovery. Home prices will likely drop due to the influx of available homes for sale, especially in markets that have a high concentration of vampire foreclosure properties.

Don’t Forget About the Zombies

Vampire foreclosures can be difficult to spot in your neighborhood since the people living in the homes tend to maintain the property and keep the utilities turned on. In some ways, this is a good thing. Zombie foreclosures, on the other hand, often mean properties are susceptible to vandals and drag down surrounding property values.

What Is a Zombie Foreclosure?

A zombie foreclosure is where the homeowner moves out after foreclosure has been started, but for some reason the foreclosure is never completed. These properties often fall into disrepair with no one to perform regular maintenance and upkeep. In addition, the homeowner who abandoned the property may not even be aware that he or she is still responsible for property taxes, maintenance, HOA dues, and any other home-related expenses, which leaves him or her in an even tougher financial situation than before.

Once lenders finally complete these lingering zombie foreclosures, those properties will also most likely end up on the market for sale along with vampire foreclosure properties.

The Shadow Inventory of Vampire and Zombie Foreclosures

In terms of numbers, there are around 250,000 vampire properties nationwide and 150,000 zombie properties. That means there are around 400,000 homes (or around 10% of the current volume of home sales) lying in wait to hit the market. Since the main reason that home prices have appreciated recently is the scarcity of homes for sale, when banks open up the pipeline and begin selling the shadow inventory, the housing recovery could stall or falter.

When this will happen and just how detrimental vampire and zombie foreclosures will be on the recovery of the housing sector is yet to be seen.

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