Meet The Monster Of The Housing Market: Presenting "Vampire REOs" Where Half Of Americans Live Mortgage-Free

Tyler Durden's picture

Over a year ago, in addition to the money-laundering aspect (confirmed previously) and the REO-To-Rent scramble by PE firms and hedge funds (which is now over as PE become active sellers of apartment rental properties), we highlighted the third implicit subsidy to the housing non-recovery: Foreclosure stuffing. We explained this scheme by banks to limit the amount of available for sale inventory as follows: "since the properties not entering the foreclosure pipeline are effectively kept out of inventory, even shadow inventory, and thus the distressed end market, the monthly drop in foreclosures has acted as a form of subsidy to the housing market, as month after month less inventory than otherwise should, enters the market.... What this has resulted in is a logical increase in prices of the properties that are on the market." Today, the mainstream has finally caught on, and courtesy of RealtyTrac has come up with its own name for this subsidy: Vampire REOs.

In a press release overnight, the foreclosure tracking service RealtyTrac, observed that a stunning 47% of bank-owned homes are still occupied by their previous owners who were foreclosed on, creating "vampire REOs."

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.

The vampires are particularly acute in Miami (64%), Houston (65%), Los Angeles (61%) which have nearly two thirds of bank-owned properties falling into the "vampire REO" category. This means that in order to generate a housing scarcity, millions of deadbeat Americans have been given a carte blanche to live mortgage-free, in some cases for years, and in a state of default in their existing homes, as the banks have no incentive to actually clear out the properties to which they have title, making home purchases for everyone else - those who have the funds and are willing to purchase a home - impossible due to artificially los supply and artificially high prices.

Putting the problem in perspective, Emmett Laffey, CEO of Laffey Fine Homes International said that "The New York metro area is experiencing a spike in mortgage defaults, however, there are very few vacant foreclosures or bank-owned properties that are languishing on the market." “Typically these types of properties are sold well within 30 days of hitting the market,” he added. Except when they never make the market.

Of course, now that home prices have been artificially boosted courtesy of just this foreclosure process "stuffing", "banks likely wish to sell these homes sooner rather than later as home prices have been rising" predicts RealtyTrac.

However, therein lies the dilemma: since the primary driver of home price appreciation has been fake scarcity, either due to Vampire REOs or Zombie foreclosures (the far more traditional homes that are still languishing in the foreclosure process but have been vacated by the homeowner being foreclosed), the second that banks unclog the foreclosure pipeline exit and begin selling this uber-shadow inventory, the entire facade of the fake housing non-recovery will begin to crumble as one after another bank scramble to hit the highest bid possible, before some other bank does so.

Expect the broader mainstream media to begin reporting on this phenomenon in another 6-8 weeks, about the time when the Y/Y increase in home prices is solidly rolling over, and the usual 18 months delay behind Zero Hedge.

Finally, those curious to see how many foreclosed homes are being occupied mortgage free in their metro area, the following interactive chart from RealtyTrac has the answer.

Source: RealtyTrac

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SheepDog-One's picture

Isn't this old 4 years old at least? Who doesn't know that many are living mortgage-free?

hedgeless_horseman's picture



In Houston, the housing market is pretty hot right now.  An acquaintance just sold a 7 figure home after getting multiple offers above the asking price the first week it was on the market.  I saw the offers, first hand.

I would rather be selling, now, than buying.  That is for certain. 

It is as if it is human nature to buy high and sell low.

Canadian Dirtlump's picture

It is absolutely human nature to do that. When prices are high the anti depressant addled masses buy for fear of missing the boat, and when the shit hits the fan they get scared into selling. I sold my place last year and am patiently waiting for the shit to hit the fan. In the prevous regard my wife is getting increasingly indignant about us buying a house in a hot market we can't afford preferably one where every fucking light in the house stays on all day and night.

Ying-Yang's picture

Tennants of Vampire REOs could then be called:

Zombie Sharecroppers

But history states "On the whole, sharecropping was not as economically efficient as the gang agriculture of slave plantations."

So how about Zombie Plantations?

SafelyGraze's picture

we would evict these deadbeat squatters, but then property prices would plummet and therefore so would property tax revenues

so instead, we provide fire and police and trash service to them. for free. because that way we keep property values high. and that helps us collect taxes. 

from the people who own homes and pay mortgages and taxes.

they are our little worker bees! 

go do some more work, little worker bees!

the national association of mayors and city councils 

Canadian Dirtlump's picture

I wonder... does the fact that the fed is buying all these MBSs mean that all the banks have to do is sit and stall, and the taxpayers eventually are left on the hook?

JoeSexPack's picture

Yes, until they can't.


The end will be when the Fed's $$$ is no good.


Or when millions of solvent mortgage payers intentionally default to live rent free a few years.



JoeSexPack's picture

Another play is default & force the lender claiming ownership to prove they have clear title in court.


Of course most don't. They need clear chains-of-transfer, notarized & registered at local courts, for their alleged loans to use real property as collateral.


That didn't happen with most of the MBS selling & robo-signing fraud.


Borrowers can claim adverse possission after 7 years in CA.


Call their bluff!

smlbizman's picture

not to this degree sheepdog...ive have wittnessed ina micro fashion, but not from a macro view...

ATM's picture

That won't cause the Fed's money to be no good. It will become no good when people lose faith in it.

But what it will do is cause the Fed to be unable to do what they say they can do - sell assets to combat inflation. If what the Fed owns when inflation starts cropping up the Fed needs to own something of perceived value to tradefor cash. They won't be able to. They will then get a double whammy of sorts - they won't have the ability to quell inflation by soaking up cash in the system and that will quicken the belief in the value of the currency.

The Fed is stuck. All they have are unanswered prayers. God help us. 

Elliptico's picture

Don't be silly.  There are no mortgages in the MBS. 

Singelguy's picture

The services are not provided for free. The banks have already foreclosed and are legally the owner and as such responsible for the property taxes. If the bank does not pay the taxes, the municipality has the right to sell the property at auction for back taxes owed. The squatters are being subsidized by the banks, NOT the municipality. The banks believe it is a good deal. Not only are property values pushed artificially higher but the squatters are more likely to maintain the property and prevent looters from stripping it.

prodigious_idea's picture

Not to quarrel, but banks pay the past due taxes on almost any property worth owning - squatter or not.  Banks don't want tax liens and it's cheap insurance at 1-2% of the "value".  Not sure where you get trash service for free.

El Diablo Rojo's picture

I'd love to buy a home, but this market with zombies, vampires, criminals (real estate agencies, banks) have re-inflated the prices completely to 2006 levels here in beautiful Temecula. I have been waiting patiently, the Mrs., not so much. It is incredibly frustrating and disheartening. With QE going indefinitely and that money being handed to criminals who can buy the type of house I would like with cash, I am left renting for another year. I would like to buy a house on an acre plus so I could get a milk cow like you have HH, probably settle for a goat. Have ample room for a real garden, not the small one I currently have. I refuse to be a slave or indentured servant, so I am left to dreaming.

Oh well, guess I will buy another faulty boat.



Quantum Nucleonics's picture

You should buy now. While a clogged foreclosure pipeline has propped up prices, artificially low interest rates make it more affordable. Imagine if prices drop by 20%, but the Fed loses control of the long end of the curve and interest rates go up 50%. Poof, you're paying more for a cheaper house.

long-shorty's picture

was that meant as MDB-style parody, nucular?

tip e. canoe's picture

tip: only get a goat if you got a large piece of acreage.  otherwise, they'll eat EVERYTHING.

with 1-2 acres, try some chickens in a rotating paddock instead.   excellent primer here:


ATM's picture

Damn right they'll eat everything, including the paint off your truck.

The Boognish's picture

I'm a fellow Temecula resident but I was fortunate enough to buy my house in '97 when prices were still very low here. House prices are rising again to ridiculous levels but there are at least four houses within a few block of mine which have been sitting vacant for years. Also it seems you can still rent a house here for much less than a housing payment.

I see no reason to believe that the housing market won't crash here again. Not many local jobs, big employers like Abbot Labs laying off major portion of the work force and with gas prices going up the cost to commute is killing people here. If interest rates go up a little more I expect the prices here will plummet. Wait it out or you will find yourself in an overpriced house that you won't be able to sell in the future if you need to move.

auntiesocial's picture

In Orange County in prestigious Coto De Caca our friend is living behind gates in a 2M spread rent free... he has been doing it for 18 months playing games with the bank, filing BK then dragging it out, at some point the carousel ride will end but for now he is living the dream in a phat ass mansion for free socking away money when the game is over. 

shovelhead's picture

I remember the very first Cowboy shoot in Coto De Caca when there were only a few houses there.

My buddy called it a future yuppie ghetto.

prodigious_idea's picture

That is exactly the strategy.  Go delinquent, file BK and start saving.  I don't think the bank can/will foreclose on an asset listed with the BK Trustee.  And then at the end, cut a cash-for-keys deal.  But cancel your homeowner's insurance too since the bank will pay the premium.  Apologies to those who believe they're subsidizing this strategy but keep in mind that the bank has paid the taxes, insurance and real estate commissions which should make you feel better about sticking it to the banks.

Miffed Microbiologist's picture

San diego is hot as well. Three homes in a friends neighborhood sold quickly 700k+, cash. This is in an average McMansion area, nothing fancy. RE agents tell me it's primarily foreign, mostly China. Though I begged him not to, a friend of mine bought locally and is struggling to pay his $2500/ mo mortgage. He has now rented out 2 rooms just to make payments. I thought he should have stayed in his trailer, it was pretty nice. He told me living in the trailer was $1000/ month which was good because many areas in San Diego were $1200-$1500! What an eye opener for me. In the early 80s we live in a trailer for $150/ mo. And people belittle kids living in their parents basement? This just can't end well.


shovelhead's picture

Poor guy.

Wait til those crap SD muni wraparound bonds need to be paid. Prop taxes are going to double.


Freddie's picture

The joke is we don't "own" our homes.   The county owns them.  If people can survive or have a business in a rural area - they are better off.  The taxes in rural areas are so low.   The property taxes in a place like New Jersey are insane.

MisterMousePotato's picture

Further to yours, Miffed ...

A month or two back, someone commented here that there is no way that Americans could compete with [he said "Chinese," but it probably applies to many if not most if not all Asians] in that the Chinese feel absolutely no shame or embarrassment about living in any space for free or as close thereto as possible to save money.

Why would anyone pay rent? And I see figures daily here of up to $2500 a month in Manhatten and even in my little Sierra Foothills town we're talking $800 - $1200 and more.

I may be kinda small time in my thinking, but I think that's a lot of money, and it adds up over time.

I hope my daughter grows up to have enough sense to live with us until she has saved enough money to achieve real independence; viz., buy a place outright and not have to send monthly tribute to Wells Fargo or whomever.

Renting is nuts. At least anything more than a trailer for $150/month.

Miffed Microbiologist's picture

In 2000 we bought our 2700 sq ft home that had a 1500 sq ft basement. Its on 10 acres, fully fenced and has a great well. The only 2 downfalls are it's 42 miles away from my work and it is located 1/2 mile up a steep dirt road that's devilishly hard to scale in winter.Numerous neighbors have gotten stuck. I flipped my husbands truck once trying to do it.

The home is beautiful with panoramic views but no one would buy it because of the road. So the owner knocked off 100k and we bought it, being well within our budget. Our mortgage is $1000/month. We pay 2k just to pay it off sooner. There is nowhere anyone could find a comparable home today on the market and we're smart enough to stay put even with high gas prices. Children today are so screwed. High student loan debt and mortgage insanity. And people are wondering why they stay at home?


tip e. canoe's picture

miffed, on that note, just bought this book today:

check out some of the photos.   cool shit.

Miffed Microbiologist's picture

OMG Tip E, so cool! I must admit I have strange fascination for alternative houses especially Earth homes. Whenever we travel in Cali I just have to stop and visit the missions. Just being inside one I get a strange sense of peace, grounding and tranquility. It can be over 100 deg outside but inside a pleasant 75 deg. I've asked Mr M if we could bulldoze our home and put one up. He's told me he's added it to the list of things I've requested ;-). Of course, living in earthquake Cali, this type of home may not be appropriate.


tip e. canoe's picture

you should check out EarthBag architecture

tried & tested in Cali, and approved by the Au-thor-i-tays of the State.

maybe experiment building a small chicken coop first before you hire the bulldozer?


astoriajoe's picture

That would put Houston in line for a stronger hurricane season in '14, no?

SheepDog-One's picture

This was proclaimed to be what was driving 'retail spending' Q after Q....'you don't have to pay the mortgage on your house anymore, so look at all the other shit you can buy!' Is it just me...or is it crazy pills? Well anyway, I've known this for a long's not just deja vu all over again.

The Proletariat's picture

In the new normal, all these vampires are buying gold and silver instead of paying their mortgage.  Of course this attributes to the decline in prices of gold and silver.

Surely this make sense to everyone....

NotApplicable's picture

The difference is that these houses have finished the foreclosure process.

Son of Loki's picture

The banks are bascially getting money from teh Fed so there is no incentive for them to move these houses and clear up the market.

Eireann go Brach's picture

NAR disputes this info and my realtor told me prices only go up!

involuntarilybirthed's picture

That can't be good?

Who's paying the property tax/Insurance?

The Alarmist's picture

You and me, friend ... you and me.

adr's picture

Um, nobody. 

But if the state comes to seize the home, they would be taking it out of the shadow inventory. 

I think in this situation the property is essentially in limbo. The home isn't listed as being owned by anyone. If there isn't an owner to pay the tax, it never gets paid.

There are over 100 properties around me that are listed as pre-forclosure on Zillow. Meaning payments are behind by six months or more. I've driven by some of the homes, people are still living there, and the house isn't up for sale.



doctor10's picture

This will finally detonate the municipal bond market. When these properties do hit the market, the resultant decline in property tax revenus will bankrupt the cities and towns. Prolly why so much is being kept off the market as it is

KidHorn's picture

If a bank forcloses on a property and are given title, they own the property and have to pay the taxes. Prior to a successfull foreclosure, the owners are repsonsible and if they don't pay, the property will have a tax lien that the bank will end up paying one way or another. Property taxes are always paid by someone.

Plus, property taxes are typically collected by the county, not the state. The state woudn't auction the home off, the county would.

Freddie's picture

Yes.  The banks pays.  The joke is the connected Fed banks get free money to pay the property taxes.  the co8unty always gets paid or they get the property.

There was a funny story not that long ago where a home owner bought a tax lien on a Bank America branch.  The homeowner sent in the sheriff to foreclose.   I think there is a video somewhere.

tip e. canoe's picture

yes, but the homes aren't owned by the banks, they're owned by a thousand MBS holders, none of which knows what exactly they're holding.

me still thinks the FED has an army of interns in a deep dark basement somewhere untangling all the slice & dice.

Meowzers's picture

That's one reason many listings are short sales. Banks purposely keep the "previous owners" present so THEY incur taxes and keep maintaining the property while the banks list the homes to find a new buyer. 

MachoMan's picture

That's really complicated...  and largely depends on how the financing was structured/assigned and who owns it.

For the most part, the purported owner of the note is paying the taxes.  The loan originator is not and will not pay shit.  The problem gets to be when the purported holder doesn't pay and the originator is the only lender of record.  Needless to say, delinquency letters from the state to the originator of a loan that's been assigned 20x...  will just get tossed into the trash bin.  In more than a few jurisdictions, it's been determined that MERS isn't entitled to notice...  so, there's a chance of an epic fuckup.  Practically speaking, there is a material amount of shadow inventory that is at risk to be lost to the state for delinquent taxes.  [and even local loans that are never assigned can get delinquent if the bank doesn't have the proper procedures in place to handle the tax payments (this is something they never thought they would have to do after all, and it does bite some local banks)].

In the end though, this is the mechanism to clear shadow inventory, NOT eminent domain (unless and until the shadow inventory becomes a true health hazard, which tends not to occur for occupied houses).  Don't bet against local governments exacting their pound of flesh...  especially from out of town global financial corporations...

shovelhead's picture

Round these parts, the county sells the tax leins and if owner of the prop hasn't paid to the buyer of the lien after 3 years the lein buyer files notice with owner and in 30 days takes possesion if not paid.

I bought a commercial building for a few grand back taxes.

The County is Honey Badger about prop taxes here. Can't see why it would be different anywhere else.