In normal market situations, a bank will repossess a home and usually get it to a Realtor for listing in the local Multiple Listing Service in as short as 30 days. Therefore, in a relatively short period of time, virtually every marketable lender owned property (a REO) finds itself listed for sale on the local MLS.

Today, that doesn’t appear to be the case. As was mentioned in an earlier blog, it has been reported that lenders are not putting all the homes they acquire on the market at the earliest opportunity. It is thought that between 450,000 and 500,000 properties repossessed over the past year are still not on the market. For example, earlier this year Fannie Mae and Freddie Mac stated they were only listing about 35 to 50% of the homes they own.

Why would they do that with hungry buyers searching for housing bargains, and agents and brokers chomping at the bit ready to list and sell the properties?

Lenders have offered a number of reasons:

  • Many of the properties have title issues that need to be resolved.
  • Many of the properties are in states of utter disrepair.
  • A number of states have strict redemption-rights periods, which prevents the lender from reselling.
  • A few states have extended the length of eviction proceedings, and federal law has also provided that legitimate renters can stay in the property for a limited time after foreclosure.
  • There are too many to process – there will be roughly 10 times the number of REOs this year as in the last “normal” year (2005).

But there may be another factor that the banks don’t want to talk about. Lenders may be holding properties off the market in order to defer losses. For accounting and federal regulatory reasons, in most cases banks aren’t required to adjust asset prices until the actual resale of the property. If they resell at the expected low prices, suddenly their assets will be worth much less than the loans were valued at, which could force the feds to seize the bank.

In Maricopa County, Arizona, approximately 40% of homes sold in November were REOs, 40% were normal sellers, with the remaining 20% short sales. If the experts are right, the percentage of lender owned real estate may rise next year from its already high amount.

Want to take one of those foreclosed homes off a lender’s hands? SimplySOLD has access to lender owned homes all over the valley, so contact us if you want us to search for one for you. Next: Lenders Aren’t Moving REOS.