RealtyTrac “Vampire REO” Nonsense

Foreclosure tracking company RealtyTrac came out with an article a few days ago that’s making the rounds among various news outlets: Monsters of the Housing Market: Vampire REOs and Zombie Foreclosures

Here’s an excerpt:

Vampire REOs are bank-owned homes that are still occupied by the previous homeowner who was foreclosed on. On the surface these properties often will look like normal, non-distressed homes, but beneath the surface they represent a shadow inventory that is becoming more imminent as rising home prices motivate banks to sell off these homes to try to recoup their losses on soured loans.

Zombie foreclosures are homes that are still languishing in the foreclosure process but have been vacated by the homeowner being foreclosed. Often these homes are more obviously distressed, falling into disrepair with no one to perform regular maintenance and upkeep.

They go on to claim that 43% of bank-owned homes in the Seattle area are “vampire bank-owned inventory,” 24% are “zombie foreclosure inventory,” and that these types of homes are somehow “threatening the housing recovery.”

Nonsense.

To understand why this is 100% non-news, let’s look again at the foreclosure timeline I posted yesterday:

Minimum Foreclosure Timeline in Washington State

This data from RealtyTrac simply says that 43% of bank-owned homes in the Seattle area have not yet reached the eviction state. In the above timeline—the fastest that the process could move—a foreclosure is “bank owned” for roughly 60 days. For 20 of these days (between the courthouse auction and eviction), the borrower is still in the home.

In other words, even if the banks were 100% efficient at processing foreclosures, about 33% of bank-owned homes would be so-called “Vampire REOs.” If this number is higher, it just means the bank is taking a little longer to evict, not that there is some large stagnant stash of REOs “threatening the housing recovery.”

Similarly, “zombie foreclosures” are non-news. Here’s how RealtyTrac defines terms in their report methodology:

Report methodology
The RealtyTrac U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing entered into the RealtyTrac database during the month — broken out by type of filing. Some foreclosure filings entered into the database during the month may have been recorded in previous months. Data is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee’s Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). The report does not count a property again if it receives the same type of foreclosure filing multiple times within the estimated foreclosure timeframe for the state where the property is located.

In other words, they’re defining “in the foreclosure process” to mean everything from the notice of default to the sale of the home by the bank. Again, referring to the timeline above, from Day 230 when the borrower must vacate to Day 281+ when the home sells, the home is empty but “in the foreclosure process.” That’s 51 days out of a 230 day “process,” or 22% of the time—almost the exact same percentage as Seattle’s percent of “zombie foreclosures.”

In some markets banks take longer to process a foreclosure at various steps, due to differing local laws, bank staffing, or foreclosure volumes. These variations, along with variations in how quickly bank-owned homes sell once they hit the market are hardly worth describing as “monsters threatening the housing recovery.”

Finally, you know I love Tableau, but seriously, RealtyTrac, what the heck is this?

RealtyTrac: Monsters of the Housing Market

How are those visualizations supposed to convey anything even slightly informative? They’re just a jumbled mess of circles and a random stack of rectangles.

Here’s the data in an actual readable form (click the headers to sort):

RealtyTrac “Vampire” and “Zombie” Foreclosure Nonsense

Market Total REO “Vampire” Total Foreclosure “Zombie”
Atlanta 20,882 35.8% 9,321 23.1%
Baltimore 7,126 24.0%
Birmingham, AL 4,641 40.5%
Cape Coral-Fort Myers, FL 7,669 26.0%
Chicago 28,305 44.7% 73,854 17.4%
Cincinnati 5,398 57.1%
Cleveland 5,523 51.6% 12,175 19.4%
Dallas 6,676 50.7%
Detroit 19,215 35.9%
Houston 6,582 64.7%
Indianapolis 7,008 31.5%
Jacksonville, FL 5,280 39.1% 16,496 30.4%
Kansas City 5,220 38.5%
Lakeland, FL 6,871 27.4%
Las Vegas 8,287 40.0% 8,217 29.1%
Los Angeles 12,992 60.6% 19,168 9.1%
Miami 30,868 63.9% 85,907 16.4%
Minneapolis 10,624 39.7%
New York 83,375 11.6%
Orlando 12,614 50.2% 26,158 20.4%
Palm Bay, FL 6,835 27.7%
Philadelphia 4,881 52.3% 23,461 19.1%
Phoenix 21,320 45.5%
Riverside-San Bernardino, CA 10,801 51.7% 11,090 15.4%
Sarasota, FL 8,407 24.8%
Seattle 8,698 43.4% 6,890 24.4%
St. Louis 4,837 33.6%
Tampa 9,274 46.0% 38,095 26.7%

I could go on a rant about the terrible misuse of bubble and treemap charts, but this guy already did it for me.

In summary: What the heck, RealtyTrac.


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

7 comments:

  1. 1
    Erik says:

    I am a troll that wishes he was a vampire. I guess only 33% of the people are smarter than me. Those vampires are gonna come out of this recovery with a huge stack of cash. I figure I missed out on about 3-4 years on the hampster wheel. 4years x 14400 = $57600. That is how much money I missed out on by short selling. My renters begged me to foreclose, but instead I said no. Is $57600 worth losing a few points on your credit score? I think so. Anybody thinking of becoming a vampire, do it. Don’t make the same mistake I did.

    Now I come on here daily to talk about what I should have done along with Losh, wreckingbull, 3rd generation, chrisM. It’s all us folks that didn’t do it right arguing about who did a worse job.

  2. 2
    drshort says:

    I doubt that the “zombie” stats don’t take into account the fact that many homes that go into the foreclosure process end up curing through things like loan modification. That creates lots of instances where the owner is still in the house long after a notice of trustee sale. Many of these go on to redefault, but that would certainly skew these stats.

  3. 3
    Macro Investor says:

    No, I’m sorry, but this is all wrong. The shadow inventory is folks who are years past due, but the bank never starts the foreclosure process. The bank does this to appear solvent, when they really aren’t. As soon as they foreclose, it becomes a loss on their balance sheets. So they drag out the bad debt as long as they can.

    Realty Track thinks they can make up cute names and make themselves look important. They are just selling a crummy data service.

    The KNOWN SHADOW INVENTORY is 2-3x larger than the MLS listings. We don’t know how many homes are years past due, but foreclosure is not even started. The banks are keeping this a closely guarded secret to protect themselves, and drive up prices.

  4. 4
    Jonness says:

    Vampire REO’s do exist. My ex-neighbor in Gig Harbor lived in his house for 3 years while not making a payment, at which point the bank foreclosed. He lived in the foreclosed home for another 2 years payment free up until last week when a SWAT team escorted him, his wife, and his two kids off the property.

    Since he stopped making payments in 2007, he got a total free ride of roughly $500K in HELOC’s and free rent. As of now, his family is broke and homeless.

  5. 5
    Corndogs says:

    RE: Macro Investor @ 3 – We do know how many homes are past due. Look it up.

  6. 6
    Erik says:

    RE: Jonness @ 4
    That is an awesome story. Thank you for sharing. My dream is to live rent free for 5 years and walk away with a ton of money in my bank. Sounds like there is something more going on in addition to foreclosing, like mommy and daddy are using drugs and not working. I want to do the first part of the scenario with the free rent, but make lots of money while i do that so I can inflate my bank account and buy another nicer house a few years later.

    There are multiple ways to climb the real estate ladder.

  7. 7

    […] some reason, a couple weeks ago the Seattle Times website featured a syndicated article about RealtyTrac’s “Vampire REO” nonsense, which in addition to being a completely worthless bit of non-news, was already weeks old when it […]

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