The Solution For Zombie Foreclosures: Cure Or Kill?


One in every five homes in foreclosure is a ‘zombie’ – meaning that it is vacant even though the bank has yet to officially take title to the property – according to recent data from RealtyTrac. In many cases, the homeowner who vacated the house isn't even aware that he or she still owns it.

These ‘zombie foreclosures,’ as they're called, have been creating blight issues for municipalities, as many have fallen into disrepair. What's more, property taxes aren't being paid on these properties while they sit empty and the banks try to track down the owners. In addition, the property owners could be held liable in the event a fire or some terrible tragedy takes place on the property.

So, what's the best strategy for dealing with zombie foreclosures?

According to an article posted on RealtyTrac's website, two solutions that were discussed during a recent one-day conference hosted by the Cleveland Federal Reserve Bank include liquidating the properties through short sales or razing them to make way for new development.

While these two solutions might seem obvious, neither is as easy as one might think: In either case, the bank or real estate agent has to find the owner and make contact with them – which with zombies is often a difficult task.

It would seem that razing the blighted properties is a more attractive alternative to rehabilitation. According to the article, a recent study of zombie foreclosures in Cleveland sponsored by Harvard University concluded that renovating was probably not a viable solution, due to the poor condition of the structures, and that ‘demolition will likely remain the predominant means of blight removal and market stabilization.’

As was reported recently by Bloomberg News, many municipalities, including Cleveland, now have plans in place to raze entire neighborhoods of blighted properties – many of which are currently ‘zombie foreclosures’ – in an effort to revitalize. Interestingly, funding for some of the projects is coming from an unlikely source: the Hardest Hit Fund of the Troubled Asset Relief Program (TARP), which was originally intended to bail out homeowners going through foreclosure.

Projects to tear down ramshackle, vacant homes by the thousands are also currently under way in Detroit, as well as smaller suburban communities such as Flint, Grand Rapids, Pontiac and Saginaw, Mich., Bloomberg News reports.

In Flint, for example, officials have begun tearing down about 1,500 dilapidated homes in an attempt to lift the housing market.

In Detroit alone, up to 70,000 homes, or about 19% of the total, may need to be torn down, according to the report.

Still, even if these municipalities succeed in rehabilitating entire neighborhoods, there is a question as to whether the housing market will ever return to pre-crisis levels in those areas.

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