Homebuyers are well aware that they have found themselves in what some call “the mother of all seller’s markets.”
With the median listing price on homes reaching a new high of $392,000 and the national inventory of active listings down by 24.5% from 2021 to 2022, it might be time to start thinking outside the box when you’re looking for a house to buy.
One option that you might not have considered is what’s known as zombie properties.
“Zombie properties can be a fantastic opportunity or a major nightmare,” says Cody Richard, owner of Full Circle Homebuyers.
To help you steer clear of disaster, here’s everything you need to know about buying a zombie property—the right way.
What is a zombie property?
A zombie property (aka zombie foreclosure) is a home that its owners vacated during a foreclosure process that was never completed. That means the bank or the lender decided not to finish the foreclosure process and therefore did not take ownership of the property. The property—much like a zombie—is neither living nor dead. Instead, it is in limbo.
There are numerous reasons a lender might not finalize a foreclosure, including the high costs associated with the foreclosure process or taxes.
As a result, the homeowners do not realize that the house title and all the associated property taxes are still in their name. Or that they are still financially responsible for a house they abandoned due to a notice of default on the mortgage.
In the first quarter of 2022, roughly 1.4 million residential properties out of the nation’s stock of 98.8 million are sitting vacant as zombie properties, according to the real estate data firm ATTOM Data Solutions. ATTOM predicts that the number of zombie properties could increase in 2022, as more banks and lenders pursue homeowners who fell behind on mortgage payments during the COVID-19 pandemic.
The risks of buying a zombie property
Before we jump into how to buy a zombie property, it’s crucial to consider all the risks associated with such a purchase.
“Think of how the zombies in the ‘Walking Dead’ are, and apply it to a house,” says Christopher Avallon, broker and owner of the Avallon Real Estate Group in Princeton, NJ. “Expect it to be barely alive, full of decay, and nowhere near habitable.”
Because the house is abandoned, it’s probably not in the best shape and will need extensive renovations. In addition to the rehab costs, there might be unpaid property taxes, homeowner fees, accrued property fines, and other expenses attached to the property.
Before you even buy the property, there will be costs associated with hiring a property inspector and, potentially, a legal expert who can help with the title to avoid future problems.
One of the most significant risks is that the original homeowner could come back and reclaim the property in the future. Different states have different laws regarding the right to reclaim a zombie property if the title is still in the original homeowner’s name.
The advantages of buying a zombie property
Now that you’re fully aware of the risks, let’s break down the advantages of buying a zombie property.
The biggest upside is the price, which is typically below market value. Buyers can purchase most zombie properties at record lows, because they are often run down and neglected. Because they are eyesores and can quickly become a haven for squatters, most cities want to get these homes renovated and back in good condition.
“If you’re up for the challenge, a zombie property can be a great way to cash in,” says Matt Woods, CEO and co-founder of Sold.com. “If you have both the monetary and physical resources for the undertaking, zombie properties can be a fun project and a great investment.”
Zombie properties can also be an excellent investment for anyone looking to get into the house-flipping business.
“If you enjoy the process of flipping houses or qualify for doing repairs on your own, [zombie properties] can be a solid bargain,” says Kenneth Read, a real estate investor with Better Home Buyers in Atlanta.
How to buy a zombie property
Because of the title discrepancies and other legal ramifications, it might be wise to consider working with a real estate attorney to help you navigate any legal matters associated with buying a zombie property. For example, you could potentially need to file a lawsuit to obtain ownership.
Finding a zombie property in the first place will involve reaching out to local Realtors®, mortgage brokers, title companies, or banks. They can usually provide a list of the zombie foreclosures in the area. You’ll also want to work with a title officer who can provide any information on outstanding liens, or other interested parties.
Finding and purchasing a zombie property will require some detective work as you figure out whom you’re buying the property from—a lender or the homeowner. In some cases, the most straightforward way to purchase a zombie property is to track down the previous homeowner and offer to buy the property directly.