The Walking Homestead

BLOG VIEW: One would think that as the nation's real estate market improves from the 2008 economic meltdown, neighborhoods would be back to normal. Unfortunately, it hasn't quite worked out that way. Some areas have rebounded, while others remain vacated and have a blighted feel like the towns you see on the television show ‘The Walking Dead.’

These homes – which could be used as a backdrop for an episode in The Walking Dead – are referred to by many in the REO and service industry as ‘Zombie homes.’ As menacing as the title sounds, the real world application of their adverse impact on communities is significant. In short, these properties can haunt neighborhoods for years.

RealtyTrac says that nationwide, one in every four foreclosed properties is a Zombie home. That's a pretty significant number, so what exactly is a Zombie home? If you have one on your street, you know it. It's that home in your neighborhood that is an eyesore, the home that is responsible for declining values. In other words, it is the house that sucks the life out of the neighborhood.

These homes are almost always vacant, with notices on the doors and/or windows and grass that's about a foot tall. Very often, they are in a state of disrepair and some are even inhabited by squatters. In many cases, these properties are considered a health hazard and some local fire departments view them as a fire hazard.

Technically, a Zombie home is a property that has been vacated by the owner or tenant, but the lender who has filed a notice of default or a foreclosure action does not yet have legal right to the property; so it sits and takes on a life of its own. RealtyTrac estimates there may be as many as 300,000 Zombie homes throughout the country.

Each state is a little different, but Zombie homes are more common in the judicial states, where the foreclosure process is protracted. The national average for a property to go through the foreclosure process is about 400 days. But there are some states, like New York, where the foreclosure process averages about 800 days. Until the property lawfully changes hands, the property owner is still technically responsible for maintenance and upkeep.

Many communities now have vacant property registration (VPR) laws in place. Suffice it to say, these laws are income generators for these municipalities. While these ordinances are very well intentioned, there is a question as to whether they are legal. Some towns have passed laws that require banks to take action.

But there are legal issues with entering and/or maintaining a property that you do not technically own yet. The question has arisen, if a homeowner or local Sheriff decides to file suit for trespassing, is the bank, servicer, or their agent on the hook? After all, they were simply following the law.

There is another requirement that has been recently adopted to combat Zombies. The Nevada Department of Business and Industry (Real Estate Division) now requires banks to utilize [Nevada] licensed property managers to oversee foreclosed properties, including Zombie homes.

With these considerations in mind, legal challenges to some of these ordinances are now being filed, with recent actions in California and New Jersey. It's not clear how these challenges will play out. On the one hand, there is a definite need to address these types of properties. On the other hand, lawmakers need to weigh if it is fair and legal to place the maintenance of a Zombie home on the back of a bank. Â

For now, we have to consider that just like on TV, real estate Zombies are hard to kill. Hopefully 2015 will bring clarity and a plan of action for the demise of Zombies.

Gabby Lopez is REO operations manager for Financial Asset Services Inc., a provider of REO, valuation, loss mitigation and title services to the mortgage industry.

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