Tuesday, November 12, 2013

How Many Foreclosed-Upon Homeowners are Still Living in the Home?

How Many Foreclosed-Upon Homeowners are Still Living in the Home?

In a recent report by RealtyTrac, a real estate tracking  website, an estimated 47% of bank-owned homes nationwide are still occupied by the previous owner who was foreclosed upon. I was surprised to learn the banks are allowing such a high percentage of homeowners to remain in their former homes, especially with the various options available to remove the foreclosed upon homeowners.

Bank Owned

While laws and procedures vary from state to state, generally  if there are no bidders or the opening bid is not met at the foreclosure sale, then the bank repossesses the property and becomes the legal owner. The property then becomes  known as Real-Estate Owned (“REO”) property. Dubbed by RealtyTrac as “Vampire REO”, the high number of former homeowners continuing to reside in their homes after foreclosure typically fall into one of four categories.

  1. Former homeowners who remain living in the house because the bank has not made efforts to remove them.

  2. Former homeowners who have a lease agreement in place with the bank, making them “legal tenants” of the property.

  3. Former homeowners who have not yet been legally evicted (eviction is pending) or the legal deadline to vacate has not yet been reached.

  4. Former homeowners who have made an agreement to peacefully vacate and the date agreed upon is in the future.

Of the four categories above, only the “legal tenants” are paying money to the banks. The other three groups consist of homeowners who are not paying a mortgage and are living for free in these REO houses. For whatever reason, the bank chooses not to put the property for sale in the real estate market, even though no profits are being made on these homes. With the real estate market beginning to recover, it leads me to wonder whether banks will continue to allow nearly half of their properties to be occupied by the former owners or become more aggressive in removing them after the foreclosure sale.