Zombie Foreclosures Are Creeping Up: Smart Investors Should Be Paying Attention

According to ATTOM, 7,519 zombie foreclosures are now scattered across the U.S., making up 3.38% of all pre-foreclosure homes. That’s up from 3.30% last quarter and 3.14% this time last year.

The uptick may sound modest, but in this market, even a small rise in distressed inventory can open big doors for real estate investors.

Zombie Homes, Explained

In real estate terms, a “zombie property” is a home caught in foreclosure limbo. The owner walked away. The bank hasn’t taken full possession. The grass grows tall, the mail piles up, and the property slowly decays into disrepair.

For neighborhoods, these homes can drag down property values and invite blight. But for fix & flip and buy & hold investors, they can be hidden gems – properties with built-in equity potential that traditional buyers overlook or avoid.

And right now, there are more of them, especially in investor-friendly states.

Where the Zombies Are Rising

Nationwide, 1.4 million homes (about 1.3% of U.S. housing stock) sit vacant. But not all vacant homes are equal. The sharpest spikes in zombie foreclosures year-over-year were found in states you might not expect, including some emerging investor hotbeds:

• Colorado: +115% 

• Washington: +114%

• Iowa: +84%

• North Carolina: +80%

• Oklahoma: +72%

Oklahoma, Kansas, Alabama, Missouri, and West Virginia all posted the highest overall vacancy rates this quarter, ranging from 2.1% to 2.4%.

For investors looking beyond the usual suspects, these trends suggest that secondary and tertiary markets could offer real upside – especially for value-add strategies or affordable housing redevelopment.

Midwest Metros: High Zombie Density = High Upside?

Among 135 metro areas analyzed by ATTOM, these five posted the highest zombie foreclosure rates: Wichita, KS (12.7%), Peoria, IL (12.3%), Youngstown, OH (10.1%), Cleveland, OH (9.5%), and Toledo, OH (8.8%).

In each of these markets, more than 1 in 10 homes in the foreclosure process are abandoned. This is a flashing green light for boots-on-the-ground investors ready to rehab and reposition.

Compare that to investor-saturated metros like Nashville, TN (0%) or Atlantic City, NJ (0.3%), and it’s clear where the path of least competition lies.

The Hidden Driver: Investor-Owned Vacancy

Across the U.S., 24.9 million properties are investor-owned, and 3.6% of them (roughly 882,000) are currently vacant. That’s not just a byproduct of market churn; it’s a signal that some portfolios are overextended.

Higher interest rates, inflation, and tighter cash flow have pushed some mom-and-pop landlords (and even mid-sized operators) to abandon unprofitable properties. 

As inflation reshuffles portfolio priorities, the next 12 months could see a wave of off-market deals, portfolio liquidations, and distressed sales. Especially in legacy investor cities with aging housing stock and moderate appreciation.

What This Means for Investors Now

There’s no crystal ball, but the signs are hard to ignore:

• Zombie foreclosures are ticking up.

• Investor-owned vacancies are rising in key states.

• High zombie density metros are concentrated in affordable, high-cash-flow regions.

For real estate investors, this isn’t a red flag – it’s a market signal.

Because while the headlines are still fixated on home prices, mortgage rates, and affordability crises, the smart capital is already sniffing out the next distressed inventory wave.

Why Dominion Financial Is Leaning In

If you’re ready to reposition neglected properties into performing assets, we’re ready to help you fund the mission.

Our lending platform is designed for speed, flexibility, and certainty:

• Fix & Flip Loans: Up to 100% LTC, no appraisal, close in as little as 48 hours

• Rental Loans: DSCR price-beat guarantee, fast closings

This is your early alert.

Start tracking high-vacancy metros, and line up your financing ahead of time – because when the next foreclosure ripple hits, speed will separate the opportunistic from the overwhelmed.