Where Have All the Foreclosures Gone?

Are there homes in your neighborhood that you know have been bought by the bank, yet you can’t find MLS listings for them online?

These days, I’m constantly coming across sold properties in Redfin whose buyers were clearly lenders. You can usually tell a lender-owned property, or REO (for real estate owned) by the weird selling price. Here are some random examples from Redfin’s database: here and here and here. A visit to Property Shark, which lists owners by name, will confirm it.

It appears that many lenders are holding on to some properties, instead of immediately turning around and putting them up for sale. Why? This article from American Banker may help explain.foreclosure.jpg

For most institutions there is no simple answer whether to offload these on-book properties. Where foreclosures are rampant — California, Florida and Nevada — there’s no easily discernible way to price them. As it worsens in markets across the country, the vast majority of banks that cut back or never heavily invested in mortgage collection and REO [information technology] are depending on overwhelmed outsourcers to help them decide whether to dump properties at perhaps a 50 percent loss or worse, or hang on for a market recovery.

Some lenders aren’t prepared to accept the potential losses:

There are rumblings that banks are still afraid of putting most foreclosed homes on the market since they’d lose too much, and perhaps harm their standard mortgage business. “I’ve heard a few of the larger servicers are starting to look at property management as an option,” says LandAmerica’s [Vinod] Thomas.

And many mortgages are not solely owned; there are secondary investors that must be consulted.

Most banks must work under the restrictions in their servicer agreements with secondary investors, including Fannie Mae and Freddie Mac. These investment pools dictate to what extent banks may or may not market the property — and can require extra due diligence if banks are trying to arrange property management and preservation services.

If a bank-owned property is on the MLS, you’re undoubtedly much more likely to have a smooth purchase. But if you try to contact the lender directly to try to find properties, it sounds like it could be a mass of red tape.

If any experts out there have some insight into this phenomenon, please feel free to comment below.

Recent Redfin posts:
A Tale of Two Households
Foreclosure Numbers Continue to Climb

  • jan

    I hear foreclosures and reo everywhere.

    Where can i find foreclosure or reo listings online along with the contact details of the owner(bank etc)

    REalty trac doesnt help much .only gives the home specs (number of beds, baths etc)but no details like the mls listing

    Please help

  • E

    There are plenty of REO’s in nice areas that aren’t listed on the MLS. Larchmont Village, Los Feliz, Hancock Park and other trendy neighborhoods all have their “hidden stock”.

    There are also plenty of REO’s that appear on Redfin in all of the nicer areas that don’t show up as a “red house” on Redfin but rather a “Green House” yet the listing description says “Bank Owned/REO” and is usually listed by some rinky-dink real estate outfit.

    The foreclosures that are actually listed are the shoddier houses of the bunch. If they would release some of their good stock maybe more people would buy as the sellers certainly don’t seem to be facing the fact that they need to lower their prices.

    I expect that in the trendier neighborhoods where people really stretched to “get in”, we will see masses of foreclosures over the next couple years.

    Who is going to support bailing out all the “Hollywood Types” who overextended themselves to get their house in the hills?

  • Tim Hebb

    One famous example: Jose Canseco only recently publicly acknowledged that his Encino home was foreclosed on, but the foreclosure was recorded in February and the lender, WaMu, still doesn’t have it on the market. A WaMu rep told me the bank has been overwhelmed by the number of problem loans on their books and don’t have enough trained personnel to address them.

  • http://losangeles.redfin.com/blog/author/cindy.allen Cindy Allen

    Jan, if it’s not on the MLS, your best bet is to contact lenders directly for their lists of foreclosures. The point of my post was to say that lenders are holding on to their foreclosures and are not releasing them to the public.

  • http://losangeles.redfin.com/blog/author/cindy.allen Cindy Allen

    Hey, E: Thanks for commenting. I would tell anyone looking for bank-owned homes that aren’t on the MLS to go to redfin.com and do a search centered on the area you’re interested in. In the search field, unclick everything except Past Sales and search for six months. Then scroll through for properties with weird, uneven sales prices, like the ones I mentioned. Then go to Propertyshark.com and find out who the lender/owner is.

  • http://losangeles.redfin.com/blog/author/cindy.allen Cindy Allen

    Interesting, Tim. The lenders are hoarding these listings. Once they get too overwhelmed, we might see an avalanche of listings flooding the market. They can’t hold onto them too long, unless, as the article I quoted says, they decided to start property-management divisions to keep up with maintenance and repairs.

  • Amit

    I think this phenomenon is a combination of the banks being completely overwhelmed by the sheer number of foreclosures and their desire to minimize their loss. Loans that defaulted close to the price that the bank can sell it for today might be put on the market immediately. Whereas homes that had a purchase price way out of whack from what today’s price might be kept on the books until the market improves. Its anyone’s guess. Perhaps someone who works in the industry and knows folks working in the loss mitigation dept of some of these banks would know better. I personally cannot see banks maintaining a large volume of assets on their books and managing them for an extended period of time, its just not in their DNA and I suspect they would probably prefer the one-time write down instead.

  • Pingback: A Housing Recovery Starting in 2012? | Redfin Los Angeles Sweet Digs

  • Pingback: Are We Headed for a Depression? This Guy Thinks So | Redfin Los Angeles Sweet Digs

  • Pingback: The Hidden Foreclosure Market | Redfin Los Angeles Sweet Digs