I ran across an interesting phenomenon recently that I’m dubbing Recycled REO.
I encountered this when interviewing a real estate agent in the Chicago area for an article I was writing for the Foreclosure News Report, RealtyTrac’s award-winning monthly newsletter.
The agent, Dave Goddard of Garry Real Estate in the Du Page County suburb of Bartlett, wrote the following quote in an email responding to some of my questions about the state of housing in his local market.
“Foreclosure inventory has increased in the last few weeks due to what I’m assuming was the backlog from the whole robo-signing debacle,” wrote Goddard, who specializes in investment properties. “I am seeing properties hit the market this week that I was inside of with buyers last year. They were pulled from the market due to legal problems and are just now being listed for sale again. So there are still very good bargains available.”
This makes sense given the foreclosure documentation and paperwork problems that have plagued lenders and servicers over the past two years — particularly in judicial foreclosure states like Illinois where judges review every single foreclosure case before it can proceed.
When Goddard brought up this trend, I asked Tom Hall, another real estate agent in the Chicago area I was interviewing for the article, about it.
“I’ve seen that only a handful of times, but what I have seen is foreclosures come through where the foreclosure process started in 2009 to 2011 that finally became bank owned homes,” said Hall, broker-owner at Huntley Realty in the Mchenry County suburb of Huntley, about 50 miles northwest of downtown Chicago. “We are moving past all of the robo-signing and settlement.”
A quick foreclosure search in Du Page County quickly turns up examples of what Hall describes. The most recently posted REO property on RealtyTrac in Du Page County is a 3,358 square-foot home in Elmhurst that was foreclosed by Bank of America on November 16.
According to the “History of Notices” section on RealtyTrac, the original “Lis Pendens” notice that started the foreclosure process on this home was recorded July 31, 2009, more than three years ago. That initial notice was followed by a series of auction notices as the property was scheduled for public auction and then rescheduled for a subsequent date. There are auction notices from February 2010, July 2010, September 2010, October 2012 and then finally November 2012.
Whether they are homes delayed in the foreclosure process or homes that recycled through the foreclosure process, the logjam of delayed foreclosures appears to be loosening in Chicago. As Goddard mentioned in the quote above, this means more inventory available for sale in the coming months, a welcome trend for Chicago buyers, according to Hall.
“We are seeing a good amount of homes that are in foreclosure that are being listed for sale,” he said, noting a shortage of inventory near the beginning of the year. “The good news is we’re gobbling up a lot of that backlog of inventory.”