Unlisted Foreclosures Can Provide Inventory Relief

Real estate investors may want to contact the REO department of their local banks to find out if these institutions have “unlisted” foreclosures in their inventories. According some estimates, there may be as many as 500,000 bank owned homes that could provide some much need inventory to potential home buyers and foreclosed homes investors.

In addition, data provided by RealtyTrac shows that about 90% of the homes in the foreclosure pipeline-borrowers have received initial notices of foreclosure or are in the throes of foreclosure auctions. That would calculate to nearly 760,000 units.

Targeting unlisted foreclosed properties

This information is puzzling to both buyers and real estate agents, considering the inventory shortage the pressure it’s putting on home prices. Many buyers and investors are aware of this vast supply of homes and are making deals before the come onto the market.

Many housing industry suspected that banks were holding on to REO properties because of the drop in home values—an average of 34% between 2007 and 2012. Now that the housing market is in recovery mode and homes prices have increased. Now that these homes have appreciated in value, more homeowners (who had been saddled with underwater mortgages and banks have shown more willingness to make deals to

Unoccupied homes among unlisted foreclosed properties

Based on RealtyTrac’s data, 90% of the estimated 168,000 vacant homes repo falls into this category. A number of these non-REP foreclosures have appreciated in value and now have a worth greater than the loan balance but have yet to be formally repossessed by the banks.

Foreclosures investors and home buyers will find it a less arduous task to buy these homes because they are vacant. The rise in home prices also has an effect on short sales transactions. Trouble homeowners who have seen their loan-to-value ratio improve have more room to negotiate a”preforeclosure” sale, pay off the mortgage and possible get cash back from the deal.

Consequently, a homeowner who was underwater with their mortgage several months ago, and rejected a short sales offer, may have the incentive to make a deal now that the market has improved.

Putting the inventory on the market

It’s not only bank owned homes that have yet to hit the market, but  Fannie Mae foreclosures FHA foreclosures and Freddie Mac foreclosures are also not being listed. RealtyTech says that 52% of Fannie REO properties are not listed. Freddie Mac inventory of unlisted foreclosure homes is about 59%. The FHA number for unlisted foreclosures is around 30%

Two of the top five mortgage lenders in the country have acknowledged that many of their REO properties remain unlisted. CitiBank reports that about 50% of its bank owned properties have hit local listings. Well Fargo said it has listed just a small percentage of its REOs due to a number of reasons- properties already under contract, repairs needed for some homes and statutory redemption periods which have not expired.

Some other reasons may be that the units are still occupied, financial institutions do not want to flood the market with REO properties– sending prices spiraling downward, or banks are withholding the homes for accounting reasons.

The best strategy for foreclosed homes investors looking for inventory may be to contact homeowners and work out a deal. You will find less competition too.

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