What is a Zombie Foreclosure?
A Zombie Foreclosure, other than just being a really fun name, is an opportunity for you to get a killer deal in this market. (No zombie pun intended!) It is another iteration of foreclosure that you should be aware of because it’s not going to show up in the traditional way like we talked about previously with foreclosures vs. short sales.
As we have talked about last time, there were about six foreclosures and short sales in the immediate Bay Area when I recorded that video in April 2021. It’s just a very, very small, teensy weensy fraction of the overall homes for sale in the greater Bay Area. Which according to the MLS, was just over 9,300 active units at the time, so nothing in the grand scheme of it all.
However, a Zombie Foreclosure is different. No, it is not made up, and yes, that is a technical term. Also, if you’re anyone who knows me or you’re anything like me, you know I love everything zombie-related–Walking Dead, Dawn of the Dead, Zombie Apocalypse, you name it. In any event, a Zombie Foreclosure is fun to talk about. More importantly, it is also an opportunity for someone looking for a deal here in East Bay.
What is a Zombie Foreclosure?
Simply put, a Zombie Foreclosure is a house that has found itself in an undead situation. That means the sellers have left and are no longer living there. They are not taking care of the property, but the bank has not taken the property through the foreclosure process either.
The owner generally gets behind on payments, receives a default notice, and just moves out, assuming that they gave possession back to the bank. Or they just want to walk away (literally) and did so. The bank is also probably still trying to contact that owner, but they’re nowhere to be found. Therefore, this house is sort of in a limbo state, hence the name Zombie Foreclosure.
Basically, this means no one is keeping the property up. No one is making payments on the taxes, the insurance, and obviously, the mortgage, but the foreclosure process hasn’t gone through all the way. It’s literally like an abandoned house, making it an opportunity for a couple of reasons.
Why a Zombie Foreclosure is an opportunity
First of all, if you can do the legwork and track down that owner and find them, it’s an opportunity to make them an offer and potentially help alleviate them of this problem they may or may not know they have. Or simply, you can just buy the house from them, assume the loan, if that’s possible on that particular loan, and take over the house without having to bid.
However, if no one is living in that property and/or maintaining it, there will be some obvious signs. The yard is probably going to be overgrown. In addition, there may also be a lot of debris on the property. It’s also most likely going to look weathered and worn. Then when you find a house that looks like what I’ve just described and you cross-reference it with the foreclosure notices on the public record, you may find yourself a Zombie Foreclosure. But that’s just the easy part.
The challenge with Zombie Foreclosures
Of course, the hard part is finding the owner. The problem is that they probably don’t want to be found, right? You’ll have to prepare for it not going to be the simplest of detective work. However, if you do find them, you can potentially negotiate yourself a pretty sweet deal because clearly, they don’t want the property anymore. More importantly, they probably also want to just get it done because they thought they were already done in the first place, hence why they just left.
Another way a property turns into a Zombie Foreclosure
One other thing to note is that a Zombie Foreclosure can also occur when the property gets through the foreclosure process, but after the bank does an analyses of how much work it’s going to take to fix up and pay all the debts, they decide against it. It is possible that the bank may find that after paying the back taxes, getting the loan current, and getting that whole loan paid back and all, they would just lose money. If that’s the case, the bank may decide to not proceed with the foreclosure and leave the property under the original owner’s name. However, if the original owner has no idea that the property is still under their name and just leaves it, the property now becomes a Zombie Foreclosure.
My personal experience talking to an owner of one
I actually had an experience with a Zombie Foreclosure from the time when I used to do a lot of cold calling.
I called the owner to ask him about his house, a duplex, in East Oakland. However, his answer when I asked him about it was “Oh, I don’t have that anymore.” So I told him, “Well, according to the tax records, you are the legal owner still.” He, therefore, told me, “Well, if that’s the case, then go check it out.”
When I went and checked on the house, it turns out that people were actually living in it. I called the owner again and said, “Hey, it looks like you’ve got tenants in there. What’s going on?”
For more context, it wasn’t like a squatter situation. People were keeping the house up, and it looked good. However, besides the owner having no idea that he still even owned this particular house, he also doesn’t know anything about having tenants. It turns out someone had somehow gotten the keys to this property. That someone then put tenants in there and collected rent payments without sending any of that to the owner.
It was a crazy situation. Unfortunately, it was also one that didn’t turn out super well. The tenants had to move out, and someone ended up buying the house at the foreclosure steps. To sum it up, I can definitely tell you that this stuff exists. People, shockingly, do not know that they still legally own their property. In some cases, they think they’ve already handled it and given it back to the bank but they really didn’t.
Why it might be worth it to look for one
The reason it’s a big opportunity is because it’s not obvious. It’s not going to show up as a foreclosure. It’s not going to show up as a short sale or an REO either. You also have to track some people down to figure out that it is, in fact, a Zombie Foreclosure and that it could be an opportunity. Ultimately, if you are willing to go drive around, look at foreclosure lists, and do layers and layers of research, you might find yourself a pretty good deal.
I hope my blog on zombie foreclosures has helped you.
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