Many properties that go into foreclosure eventually end up at a sheriff's auction, where they are usually purchased by the banks, mortgage companies, mortgage services, and government-sponsored enterprises involved in financing the foreclosed mortgage loan. These properties are referred to as 'REO' (real-estate owned) properties. Between 2005 and 2008, there has been a drastic increase in REO properties being sold at extremely low prices—$10,000 and often less.
The Center on Urban Poverty and Community Development has produced a report, "Beyond REO: Property Transfers at Extremely Distressed Prices in Cuyahoga County, 2005-2008," that takes a look at the trend of REO properties sold at $10,000 or less; the most frequent sellers and buyers of these properties in 2007 and 2008; time between property transactions; the price of properties in subsequent transactions; and limited information about the practices of some buyers and sellers of REO properties.
The study finds that 75 percent of REO properties on the east side of Cleveland sold for $10,000 or less in 2008, and that many other areas are seeing high rates of REO properties going for dangerously low prices. Deutsche Bank and Wells Fargo are among top sellers of properties at these prices.
Many different individuals and organizations are purchasing these properties, and properties are sold multiple times, often quickly. After leaving REO, 44.32 percent of properties were sold again within 90 days. The condition of the property is often unknown, but reported by community members to be extremely distressed, often having been victim to vandalism and robbery while vacant during and after foreclosure.
The effectiveness of buyers in returning these low-valued properties to occupancy or productive use by other means has yet to be evaluated, and doing so will remain an important challenge for many communities in years to come. Programs like the Cuyahoga County Land Bank, currently being deliberated in the Ohio House and Senate, show promise in helping reclaim and rehabilitate these distressed properties.
The report can be accessed from the Center on Urban Poverty and Community Development's Web site or via a direct link.
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