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.
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
