How to Buy Zombie Foreclosures
With Halloween just around the corner, it’s the perfect time to learn how to buy zombie foreclosures. Recently, it’s been reported that zombie foreclosures are up 21%, which means there are a lot of opportunities for real estate investors. However, if you don’t know what a zombie foreclosure is, you might not be equipped to take advantage of this. So let’s first define what a zombie foreclosure is.
What is a zombie foreclosure?
A zombie foreclosure or a zombie home is a type of property that has been abandoned by the owner. This is usually sometime after the foreclosure process has begun and before the foreclosure process has been completed. Therefore, the bank/lender has not taken ownership of the property, leaving it abandoned. Essentially, the property is in limbo. These homes tend to be available longer than their fully foreclosed counterparts. In addition, because the property has not completely foreclosed, the title remains in the original homeowner’s name.
Some people might mistakenly assume a zombie home is similar to shadow inventory. However, this would be incorrect as shadow inventory are properties that have completed the foreclosure process and are bank owned.
Reasons why the bank hasn’t completed foreclosure
It’s going to be important to understand the process of a zombie foreclosure, because it will put you in a better position to purchase the property.
There are several reasons why a bank hasn’t fully foreclosed on a property. Oftentimes, banks do not want to assume the responsibility of repossessing a home. Assuming ownership of the home will cost money to take over and hold. In some instances, the paperwork simply was lost.
As these homes stay in limbo, there are opportunities for investors to come in.
Consequences of zombie properties for original homeowners
Since zombie properties are homes that have not been foreclosed on, the home’s title still resides with the original homeowner. This will make them responsible for several debt obligations that they may not be aware of. Which will directly affect their credit score and ability to finance. With this knowledge, you can imagine how motivated these individuals can be.
Risks of investing in zombie properties
Great rewards come at great risks. Therefore, if you plan to buy zombie foreclosures, you will need to understand the risks.
A property in limbo typically means the home has been deteriorating. As mentioned, these homes have been abandoned, so they have had no upkeep or maintenance for months, sometimes for years. That being said, investing will almost certainly involve fixing the property. It will be important to analyze this deal.
When visiting the property, bring your contractor or handyman. So they can give you a quote on how much the repairs will cost you. This way, you can have the numbers to analyze the deal quickly.
However, don’t forget about doing your due diligence. Understand what the fair market value (FMV) of the home is after repairs. If you’re doing this for cash flow, get an understanding of what homes rent for in the area. Also learn if there are any negative associations with the property.
While it’s been abandoned, it could have been used to conduct illicit activities. If this is the case, it can make the home difficult to sell and to rent. It’s important to get all the information when choosing to invest in a zombie home.
How to buy zombie foreclosures
Let me preface that zombie properties are very complicated. Definitely more difficult than traditional properties. Then again, fortune favors the bold.
There are several strategies with locating a zombie property, and they will all involve communicating with various professionals.
Strategies to find zombie properties
- Reach out to the banks and see if they can send you a list of zombie foreclosures. While you’re at it, ask for a regular list of foreclosed properties.
- Connect with a title officer. It’s going to be important to have a title officer run a title check. You want to see if there are any liens against the title. Also, they can check if there are other interested parties involved with the property. If this is the case, you’ll want to do a quiet title lawsuit. I would hire a real estate attorney and get some advice for whatever your particular situation might be.
- It’s not usual, but sometimes property management companies will have records of zombie properties, especially if they managed it. However, if they don’t have a list and you have some questions about some properties you did find, it might be worth networking with some professionals to see if they can provide you with additional information about the property and area.
As you can see, locating zombie foreclosures will be challenging, and going through the process of purchasing the property will also add another layer of complexity. However, if you’re looking to buy properties at a great price, then zombie properties should be part of your investment strategy. All in all, this is one strategy that helps everyone. The homeowner doesn’t have a foreclosure on their credit report, the bank gets their money, and you get a great deal! If you’re looking for something less complex, you may want to learn more about subject-to deals with my Investor Kit.