Zombie Homes

Last time I wrote about Ghost Owners, i.e. investors who rent out their condominium unit or owners who are away for long stretches of time. This time, it's about Zombie Homes, i.e. homes left vacant for long periods of time because of a foreclosure or more likely because an owner has abandoned a property to the bank and simply left. I should have saved these two columns for near Halloween. Sigh.

To be clear Zombie Homes are around with less frequency than they have been in past years as the economy is still, sort of, on a slight, upward trajectory. Back in 2008, it became a real problem when many units were vacant and either banks had not foreclosed, or they had foreclosed, but had not sold the Unit because there was more owed on the mortgage than the Unit would sell for on the open market. But at some point, the economy will start to slow down and when it does, there will be more and more vacant homes, so best to know about them and what to do before it becomes a real problem.

For instance, in August of this year, ATTOM Data Solutions (a nationwide property data base) released its 2019 third quarter Vacant Property and Zombie Foreclosure Report. (I'm not making this up.) It showed there are over 1.5 million single family homes and condominiums vacant in America, approximately 1.6 percent of all homes. Not a large percentage, but still, 1.5 million. That's a lot of empty homes.

In turn such Zombie Homes can raise concerns. Once they start falling apart, primarily in homeowner associations because the lawn isn't cut, windows may be broken, siding may get torn, cracks in the driveway, and a dark house at night, it's an invitation for criminals, especially now in the midst of the opiod epidemic.

But it can create problems in condominium associations as well. It's usually a little less of a problem because most of the exterior work is undertaken by the condominium association, but if in a small association even one (1) unit is not paying the condo assessments, then it can be hard to make repairs on all Units. Less money, if any, is put into Reserves for capital repairs, so when the bill comes due the paying owners are assessed (sometimes much) more than they otherwise would be assessed if all Units were occupied and paying the condominium fees.

One Association in New York State a few years back had but two units out of 84 that were Zombie Homes. But because of an ongoing roof repair throughout the entire project and the capital expenses, the remaining owners had to pay an extra $70,000.00, almost an extra $1,000.00 per Unit.

And let's not forget the regular maintenance. An Association might have to, for instance, pay to have the heat on in the Unit during the winter in order to make sure the pipes don't freeze. And it likely can't just drain the pipes and shut the heat because it might get so cold as to increase the heating costs of the neighboring units.

So, for the HOA or the condo association, Zombie Homes can create a real financial problem.

What to do about it? Be a bit more proactive. In my experience owners stop paying the condo fee long before they stop paying the mortgage as most people don't want to lose the place where they live. If an owner is delinquent, the New Hampshire Condominium Act places an affirmative duty on boards of directors to collect what is owed. That sounds simpler than it sometimes is. It can takes months and sometimes more than a year to perfect a Memorandum of Lien on a Unit, file suit, try a case, and get a judgement. But once done an Association might be able to sell the Unit t a Sheriff's Sale and collect its money that way.

It may even want to buy it, fix it up, and rent it out until the bank decides to foreclose. Check and see how much is owed on the mortgage. And check with other owners in your Association (or a local realtor if none have sold recently) and see what units are selling for. If the price is right, purchase the unit at foreclosure, fix it up a bit, and either rent it out (one Association makes good money doing this) or sell it.

The worst thing you can do … is nothing.