Foreclosures are a fickle thing. First and foremost, they are terribly unfortunate for the home owners that have to go through that process. Foreclosures are an inconvenient truth for lenders. In most cases, the home is being repossessed by the lender due to the owner's lack of ability to make their monthly mortgage payment for 90 consecutive days. Once this happens, the bank begins the foreclosure process. The home owner always has the ability to regain control of the property if they are able to pay the back balance of their missed payments. However, this is rare. Usually, it is a series of their own unfortunate events that leads to someone losing possession of their home. However, due to the faulty loans that were created before the financial crisis, many homeowners with "sub-prime" mortgages never stood a chance. Throughout 2004-2008, many people bought properties using loans that were predatory in nature and have had a difficult time honoring their payments. Thus, those homeowners lost their homes to the banks. Those lenders have been punished and prohibited from funding those types of loans. Many feel that the recent recessions is mostly due to that sort of reckless lending.
Once the bank has taken back possession of the property, they sit on it for quite some time. They have a myriad of asset managers and accountants that need to process information and often their corporate machines gobble up the properties for an awfully long time. Eventually, the bank contacts a local affiliate Realtor to list the property. An alternative term for foreclosed properties is REO properties. REO = Real Estate Owned. This is the terms that we most often use regarding foreclosures. REOs refer to a foreclosure or any other property that is controlled by a bank or lender, rather than a conventional home owner. The REO listing is then listed on the MLS and offered to the public. One misconception associated with Foreclosures is that they're always a great deal. The whole point of the bank listing the property is to cover recover what they lent on that property. This means that they have a bottom line and they intend on recouping their investment. If the old mortgage holder owed more than the house was worth (which is common with sub-prime mortgages) then the bank will have to try to net more than the house is actually worth in today's market. Many people buy foreclosures solely because they think they're a great deal and later find that they paid far too much. Also, most people leave foreclosures in really bad shape and the new owner must sink money in to the home to even male it livable.
The reason that I'm writing this article is because I just read and article from Realtor Magazine entitled, "REOs Are Back and On The Rise." The article finds that July showed foreclosures to be up 7% from June and 14% from July of 2014. The hope is that this might be the last swath of foreclosures due to sub-prime mortgages. The rise in foreclosure listings last month was due to what seemed to be a rush in the banks repossessing properties to offload them on the market. Like I said before, the foreclosure process takes much longer than most people realize. The article points to the average days of a foreclosure taking 629 days. In many cases, they bank can initiate certain parts of the process to speed up the foreclosure, which seems to be what has been happening recently. The number of new foreclosures is actually at it's lowest level since 2005! 61% of these bank repossessions were originated in the pre-crisis economy, which are those sub-prime mortgages again. I believe that the banks were taking notice of the housing market becoming competitive again and decided to push through to offload much of their inventory to the droves of motivated buyers that have been active in the market recently.
The great news is that the number of new foreclosures is very low in comparison to previous years. This is due to tighter regulations forbidding banks from providing predatory loans to the public like in the '04-'08 economy. The good news is that if you're interested in foreclosed properties, there is a new surge in available foreclosed properties and there should be more coming (keep in mind that those are not always a bargain!). There has been some speculation that the increase in reverse mortgages and home equity lines of credit might create another surge of REOs in the future, as well. If you have any further questions about REOs, let me know! I'll do my best to answer them.
And as always, if you or anyone you know if interested in buying or selling a home, let me know! I'm more than happy to help. The market is very competitive right now and having a great Realtor is more important than ever.
Troy Franklin Gandee