U.S. Markets closed

Use Your Brain: Find a Zombie House to Buy

Brian O'Connell

NEW YORK (TheStreet) -- Daren Blomquist, a vice-president at RealtyTrac, sees an interesting trend in the U.S. real estate market: The emergence of the "zombie" home.

Blomquist laid it out in a recent "state of the real industry" presentation in Las Vegas describing how zombie homes are rising, bringing down the value of neighboring homes in the process.

In that speech, he described zombie foreclosures as "properties that have started the foreclosure process and have been vacated by the homeowner, but have not yet completed the foreclosure process and become bank owned."

Altogether, there are about 300,000 zombie homes in the U.S., with another 10.9 million homes at risk since owners owe more on the mortgage than the home is worth. If the homeowner can't make the payments, those homes are well on the way to zombie status too, Blomquist says.

Five U.S. states -- Washington, Indiana, Kentucky, Nevada, and Oregon -- have zombie houses representing more than 50% of their total foreclosures. Florida has the most zombie households, with more than 90,000 vacant homes, says RealtyTrac. Illinois and California follow, with more than 31,000 and 28,000 zombie homes, respectively.

The rate of U.S. home foreclosures rose by 9% in the first quarter of 2013, to 1.5 million homes, the firms adds. The good news in that scenario is that the Q1 figures are still 32% from the market peak of 2.2 million in December 2010.

Legal resolutions on so-called robo-signing foreclosures, in which paperwork was rubber-stamped by overwhelmed lending analysts, have triggered a surge in zombie-home activity.

"Delinquent loans that fell into a deep sleep after the robo-signing controversy in late 2010 are gradually coming out of hibernation following the finalization of the national mortgage settlement in April 2012," Blomquist says. "The settlement provided some closure regarding accepted foreclosure processing practices, and as a result lenders have been reviving more of these delinquent loans and pushing them into foreclosure over the past 12 months, particularly in states where a lengthy court process has resulted in a bigger backlog of nonperforming loans still in snooze mode."

Past that, what do zombie foreclosures represent to the real estate sector and regular Americans?

Blomquist says those homes represent a great opportunity for both.

"For real estate agents -- as well as buyers and investors -- the zombie foreclosures represent an opportunity to identify a distressed homeowner who has already moved on from their home and is therefore much more likely to be interested in selling that home via short sale than a distressed homeowner still living in the home," he said.

It's Official: Action Alerts PLUS beats the S&P 500 with Dividends Reinvested! Cramer and Link were up 16.72% in 2012. Were you? See what they are trading for 14-days FREE.