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