What The Jump In Zombie Foreclosures Foreshadows

Performance Property Real Estate Question

Q: Gerald, I just saw an article about a spike in zombie foreclosures this year during the pandemic. What’s a zombie foreclosure and what’s the impact? Derrick, Bayonne, NJ

A: Zombie foreclosures rose recently to almost 4% of the over 200,000 homes already in the process of foreclosure–this step in the process before the foreclosure sheriff sale is called pre-foreclosure.

A pre-foreclosure becomes a zombie foreclosure when the owner vacates the home when the foreclosure process begins, despite the fact that the property remains in the homeowner’s name.

Zombie foreclosures were up 3% from Q2 2020, even though the overall number of homes in the process of foreclosure declined 16% due to the foreclosure moratorium. Vacated properties in foreclosure rose in 49 of 50 US states. This increase is seen by many as a red flag and bad harbinger of things to come because zombie foreclosures were prevalent during the global financial crisis of 2008-2009 which resulted in home values plummeting. Vacant properties often reduce the value of other properties in the same neighborhood and can present a safety hazard and target for squatters. One of the sad things about zombie foreclosure is homeowners in pre-foreclosure don’t need to leave. In fact, homeowners do both themselves and their communities a favor by staying in their home and either trying to work a mortgage loan modification with their lender or selling their home before it is foreclosed on. I think many people mistake the beginning of the foreclosure process for the final step in the process. When homeowners abandon their home prematurely, they lower the value of their neighbor’s homes and they eliminate options they have that are better for them than abandoning their home. Abandoning a home during the pre-foreclosure process does not solve any problem a homeowner is facing–it forces them to find another place to live before it’s necessary and the home remains in their name until it is foreclosed on anyway. Thanks for your question, Derrick.

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