Vampire REOs and Zombie Foreclosures Threatening Housing Recovery

About 47% of bank-owned homes across the country are still occupied by the previous owner who was foreclosed on by their lender, deemed to be vampire REOs. Image: Fotolia

Realtors nationwide have been complaining for a long period of time about a shortage of bank-owned homes available to sell.

RealtyTrac has identified two threats that are harming housing recovery efforts right now: vampire REOs and zombie foreclosures.

According to the Irvine, Calif.-based data firm, about 47% of bank-owned homes across the country are still occupied by the previous owner who was foreclosed on by their lender, deemed to be vampire REOs.

These properties often will look like normal, nondistressed homes. But in reality, they represent a shadow inventory that is becoming more imminent as rising home prices motivate banks to sell off these types of homes to try to recoup their losses on soured loans.

Houston, which has a total REO inventory of 6,582 homes, has the highest percentage of vampire REOs with 65%, RealtyTrac said.

Another metropolitan area that has a large volume of vampire bank-owned inventory is Miami. Here, vampire REOs account for 64% of the city’s REO inventory of 30,868 assets.

Meanwhile, other notable markets in which vampire REOs are larger than 50% of the city’s bank-owned inventory levels include Los Angeles (61% of its 12,992 REOs), Cincinnati (57% out of 5,398), Cleveland (52% out of 5,523), Philadelphia (52% of the 4,881 bank-owned housing units), Riverside, Calif. (52% of 10,801 REOs), Dallas (51% out of 6,676) and Orlando (half of its 12,614 total REO inventory).

RealtyTrac also said homes that are still deteriorating through the foreclosure process but have been vacated by the homeowner—known as zombie foreclosures—make up 20% of its database. Often, these homes are not maintained properly and represent a threat to the quality of the surrounding neighborhood, therefore causing property values to fall in markets where these assets sit.

Additionally, the homeowner who left the property may not be aware that he or she is still responsible for property taxes and any other expenses that come with homeownership, leaving them in an even tougher financial spot when they discover this reality.

Cities where zombie foreclosure inventory is greater than 25% of the total amount of properties in foreclosure are St. Louis, Indianapolis, Jacksonville, Las Vegas, and the Florida markets of Palm Bay, Tampa, Lakeland, Fort Myers and Sarasota.

“These threats to the housing market can be bargain opportunities for proactive buyers and investors,” RealtyTrac said. “Zombie foreclosures represent a prime opportunity for a short sale that helps the homeowner, the neighborhood and even the hesitant-to-foreclose bank in the process; while vampire bank-owned homes represent imminent inventory that you can act on before other buyers and investors are aware of it.

The following data is based only on 220,000 out of the total 525,000 REOs nationwide that RealtyTrac shows as active.