Zombie Foreclosures Post 1st Increase Since Moratorium’s End

The number of vacant properties going through the foreclosure process is on the rise once again, even as fewer total properties lie vacant.

For the first time since the foreclosure moratorium ended last year, investors may get their chance to purchase more vacant properties at a discount. 

The number of vacant properties going through the foreclosure process rose to just over 7,500 in the second quarter of the year, according to the latest report from Attom Data Solutions. That’s a nearly 3 percent increase from the previous quarter, but 6 percent lower than the same time last year.

These so-called “zombie” properties — houses that have already been vacated while a foreclosure filing is being resolved — remain relatively rare. But they’ve long caught the eyes of investors looking for a deal.

“The incidence of zombie-foreclosures tends to be higher in cases where the foreclosure process has dragged on for many months and sometimes even for years,” Attom Executive Vice President of Market Intelligence Rick Sharga said in the report. “We’re now seeing properties where the borrower was already in default prior to the government’s moratorium re-enter the foreclosure process, and undoubtedly some of these homes will have been vacated over the past 26 months.”

This upswing coincided with a nearly 13 percent rise in properties undergoing foreclosure over the same period of time. 

Even with this sharp increase, the number of foreclosures remains relatively low compared to its historic averages, a fact that Sharga attributes partly to the red-hot home market.

“According to our equity report, almost 90 percent of homeowners in foreclosure have positive equity,” Sharga said in the report. “Having equity gives financially-distressed homeowners an opportunity for a relatively soft landing — selling their home at a profit rather than losing everything to a foreclosure. That factor alone should keep the number of zombie-foreclosures from rising too much.”

Despite some signs of a cooldown in home-sale activity compared to this time last year, houses are still flying off the shelves, and inventory remains far lower than its historic levels.

Amid this flurry of activity, the number of vacant homes has also continued to decline.

Overall, the number of homes lying vacant in the U.S. dropped to its lowest levels in years.

There were 1.3 million vacant homes in the second quarter of 2022, Attom reports. That’s 50,572 fewer homes lying empty in the second quarter of 2022 than there were during the previous three-month period, and 105,450 fewer than the same time last year.

But as banks have continued to ratchet up their use of the foreclosure process since the moratorium ended last year, this class of distressed properties has quietly crept upward.

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