2021 to Bring Spike in Zombie Foreclosures

2021 to Bring Spike in Zombie Foreclosures

If something doesn’t change dramatically for many households by the end of this year, we could see a spike in “zombie” foreclosures in 2021. According to the ATTOM Data Solutions “Q3 2020 Vacant Property and Zombie Foreclosure Report,” about 1.5 million residential properties are currently vacant in the United States with nearly 8,000 of those properties sitting empty in a state of “zombie” foreclosures. Foreclosures themselves are down dramatically (16 percent quarter-over-quarter), but nearly 4 percent of all foreclosures have been abandoned as zombies (compared to about 3 percent in Q2).

ATTOM Data analysts say a spike in foreclosures, zombie and otherwise, is likely to begin toward the end of 2021 when most federal and state foreclosure moratoriums will have expired. These moratoriums currently affect an estimated 70 percent of home loans in the United States. Todd Teta, chief product officer with ATTOM Data Solutions, said, “Abandoned homes in foreclosure remain little more than a spot on the radar screen in most parts of the United States, posing few, if any, problems from neighborhood to neighborhood. But the latest numbers do throw a small potential red flag into the air, given the increase in the percentage of zombie foreclosures.”

The Midwest and South have the highest number of zombie foreclosures, but zombie rates are rising everywhere but Hawaii. One in 9 foreclosures is classified as a zombie in Georgia and Kentucky, while Tennessee posts one in 10. This likely represents an opportunity for real estate investors since the south, in particular, is experiencing serious demand for real estate from buyers in- and out of state thanks to its temperate climate and relatively relaxed COVID-related business restrictions.

However, even zombie foreclosures are protected by state and federal moratoriums, effectively hamstringing community efforts to get the properties in possession of someone who will maintain them and protect property values. Rick Sharga, executive vice president for RealtyTrac, called this effect an “unintended consequence of the foreclosure moratoria put in place by federal, state, and local governments.” He warned, “Vacant properties can contribute to neighborhood blight and become safety hazards – especially during a pandemic.”

Sharga also noted that some states with notably high rates of zombie foreclosures are also among the hardest-hit in terms of the COVID-19 pandemic. He predicted, “When the government bans on foreclosure activity expire, it wouldn’t be a surprise to see the number of defaults in those states increase more rapidly than in other parts of the country.”

At Strategic Passive Investments, we believe that real estate markets function best with relatively low amounts of government interference, such as the foreclosure moratoriums that sweep across all properties and prevent lenders from doing anything to remedy bad situations with vacant homes. However, regardless of our opinion on this topic, we are poised and ready to act to restore communities and improve property values when this spike in zombie foreclosures emerges, and our investors will benefit from our preparation and swift action.