Anyone interested in acquiring a property in foreclosure would be wise to knock on the door before checking the place out.
According to RealtyTrac, an online marketer of home foreclosures, roughly half of all homes in foreclosure are occupied, either by tenants or the previous owner. RealtyTrac reported a foreclosure occupancy rate of 47 percent, a figure the company arrived at by comparing its database of bank repossessed homes (called REOs by insiders, short for real estate-owned) with postal records, including whether or not mail was still being delivered to the address, or if change of address forms had been submitted to the United States Postal Service.
When foreclosure proceedings begin, it can take months before a bank can legally evict a tenant. In some states, the process can take six months or longer due to the legal process attached to foreclosure proceedings. Generally, there are more vacant REOs (also called zombie REOs) in “judicial” states versus “non-judicial” states, such as New York and Florida, which have less paperwork and fewer procedures to complete.
Vampire REOs are those with occupants, and they represent some safety risks, but vacant zombie properties may be worse for the neighborhoods they occupy because they invite illegal residence and vandalism of the property.
In the report, RealtyTrac’s Vice President Daren Blomquist said, “On the surface, these properties will often look like normal, non-distressed homes, but beneath the surface, they represent a shadow inventory that is becoming more imminent as rising home prices motivate banks to sell off these homes to try to recoup their losses on soured loans.”
Vampire REOs can present potential problems to would-be buyers of the foreclosed property. Once the new owner acquires the property, the tenant becomes their own. If a legitimate rental contract is in place, the new owner will be required to follow local ordinances in respect to the tenant, particularly if the new owner wants to move in. In that case, the new owner won’t be able to move in right away, and will have to provide legal notice to the tenant according to state and local laws.
If the tenant is the former owner, then eviction proceedings should have begun before the sale, but some banks have such a high volume of foreclosure homes that not all paperwork is filed in a timely manner. Further, previous occupants have been known to linger and a disgruntled former owner may cause damage to the property. However, paperwork aside, banks aren’t always quick to evict as having an occupant can also protect the home from other damage such as frozen pipes and damage from break-ins.
Blomquist said empty, zombie properties are more problematic than vampire REOs. “Often, these homes are more obviously distressed, falling into disrepair with no one to perform regular maintenance and upkeep,” Blomquist stated in a press release. “As such, they often represent a threat to the quality of the surrounding neighborhood, dragging down home values.”
Metro areas with high percentages of vampire REOs include Houston (65 percent), Miami (64 percent) and Los Angeles (61 percent). Metros with lower percentages include Atlanta (36 percent) and Detroit (36 percent). In high-volume areas like New York City, the properties rarely stay on the market for long.
RealtyTrac has also stated that Alabama, Georgia, Maryland, Michigan, Missouri, New Hampshire, Texas, Virginia, Wyoming and the District of Columbia are the only states in which the foreclosure process usually takes less than 60 days. All are states in which the process of foreclosure is non-judicial.
For more information on the best mortgage rates, visit our mortgage page.