It was just a few years ago, we rarely saw homes being foreclosed by banks and later sold by banks on the MLS as REOs (Bank Owned Properties). On top of that, Short Sales were unheard of in those markets of yester year. However in today's market, a good percentage of homes are REOs or Short Sales and they all have one thing in common. These properties are bought and sold by banks or the banks have final approval of the property sale.
As of last month, banks controlled over 50% of the real estate transactions in Santa Cruz County. For the most part, Bank control of transactions and inventory is not good for the market. These distress properties are some times neglected, abandoned and stripped, resulting in lower property values when they are sold. Recently some cities have required banks to maintain properties they own and this has helped. However the over all impact of bank owned properties has had a major negative effect on home values.
With the current national trend of ten percent of homeowners being delinquent on their mortgage payment, we are sure to see a continued trend of bank controlled transactions and inventory. Both State and Federal governments have tried to stem this tide with loan modification programs and foreclosure moratoriums, but these programs have had very little effect to date. So unless there is a new approach to this problem, it will take several years to reduce the number of bank controlled properties and return to a market that is controlled by home owners and buyers. The good news is that there are alternative solutions that are being considered. I'll go into more detail on these alternative solutions in my next blog.
Bank Foreclosure (Homeowner is unable to make mortgage payment, Banks sells home through a foreclosure auction process. In most cases the Bank buy back the home at the auction for the value of the mortgage.)
REO ( After bank purchase of the home via foreclosure process, Bank sells the home on the open market through MLS or at public auction)
Short Sale (Homeowner owns home with a bank mortgage that is greater than the properties market value. Homeowner with Bank approval can sell home short of the value of the mortgage. Results in, Homeowner loses equity and Bank takes a loss on the mortgage.
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