Why Are Some REOs Already Sold or Owned by Non-Banks?

This is the fourth post covering questions asked by attendees to the Foreclosure Buying 101 Webinar and RealtyTrac website demo.

View the most recent recording of the webinar.

In the first post we covered the topic of avoiding foreclosure, in the second post we covered the topic of buying at the foreclosure auction, and in the third post we covered the topic of buying bank-owned homes.

In this post we’ll stay on the topic of buying bank-owned homes, but address some specific challenges in doing so raised in two different questions asked by attendees to recent webinars.

1. Why are some bank foreclosures and other foreclosures listed on RealtyTrac already sold?

Before diving into this answer, it’s important to first clarify that not all bank owned properties (REOs) or pre-foreclosure properties on RealtyTrac have even been listed for sale yet. In fact, we estimate that only about 15 percent of REO homes are listed for sale.

That’s because once a bank takes possession of a property through the foreclosure process, it can take some time, often several months, before the property can be listed for sale. Activities that can occur during this in-limbo period are eviction of the previous homeownwer, waiting for the redemption period or lease agreement to expire, and repairs to the property.

All this to make the point that many bank-owned properties are not listed for sale, and if you run across a bank-owned property on RealtyTrac that is not listed for sale, that certainly does not mean the property has already been sold; it may mean the property has not yet even been handed over to a real estate agent to list.

Now, there are some instances where REO properties on RealtyTrac have already been sold. We remove sold REOs as soon as possible, matching our REO data against both Multiple Listing Service (MLS) data and also sales deed data on a daily basis to remove any properties that have been sold; however, this data is not always perfect and also when it comes to the sales deed data there can be a delay of several days to even sometimes several weeks from when the property is sold to when the sales deed is recorded.

The best antidote to already-sold REOs is to search for more recently posted properties. You can do this by using the “Sort by” pulldown on on search results page or by simply clicking on the “Entered Date” header at the top of any search results to sort the most recently posted REOs to the top of the list. Of course, some investors are most interested in pursuing REOs that have been posted for a long time to avoid competition, but just keep in mind that if you employ this strategy you are more likely to run across some that have already sold.

2.  Why are some REOs owned by LLCs that don’t appear to be banks?

When a foreclosure property is auctioned off at a public foreclosure auction, it is sold to one of two parties: either a third-party buyer or the foreclosing lender. If it “sells” back to the foreclosing lender, which happens the majority of the time, it becomes an REO, or Real Estate Owned by the lender.

The tricky part is that not all foreclosing lenders are banks. You can have private companies (such as an LLC) or even private individuals that foreclose on a property and take possession of it at the foreclosure sale.

When RealtyTrac collects the results of these foreclosure sales, we apply a complex set of data scrubbing rules to identify which of these sales are back to the foreclosing lender and which are to third parties. The vast majority of the “owners” identified on the REO listing should be the foreclosing lender, even if the name appears to be a private company; however, there may be some instances where a third-party bidder at the auction slips through.

Even if the owner of an REO is a third-party bidder, there could still be an opportunity to purchas the property from them as these third-party bidders are often investors who will want to re-sell the property.

Still, if you’re only interested in purchasing REOs from banks, you can use the RealtyTrac lender name search to identify REOs owned by specific lenders (see video below).

Sign up for a RealtyTrac free trial for full access to pre-foreclosure, auction and bank-owned homes nationwide.

Related News
4 Steps to Buying a Bank-Owned (REO) Home
How Do Homeowners Avoid Foreclosure?
What Happens At and After a Foreclosure Auction?

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