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Thursday, March 19, 2009

Banks Sell Some REOs in Bulk below Market Prices

by Calculated Risk on 3/19/2009 04:55:00 PM

From Zach Fox at the North County Times: HOUSING: Banks selling properties in bulk for cheap

Lenders have become so overwhelmed by the foreclosure crisis that they are starting to unload properties in bulk to investor groups at steep discounts.

Investors then flip the properties for a profit without necessarily improving the home.

For example, a unit of Citigroup, the troubled financial giant, sold a foreclosure in Temecula to an Arizona investment firm for $139,000 when comparable homes in the area were selling for $240,000 to $260,000.

The firm listed the home for $249,000, received multiple offers and the property has entered escrow, said Amber Schlieder, the real estate agent who handled the listing.

...the Temecula foreclosure was first listed for sale by Citigroup in May 2007 for $420,000, according to Multi-Regional Multiple Listing Service ...

The property was listed on the site for 19 months before selling to the investors in a bulk sale in December 2008. The lowest price it was listed for was $314,000.

"It should have been listed for less," said Craig Finlayson, a real estate agent in the area who listed the property for Citigroup. "But it would have sold for more than 139 (thousand); 139 was a giveaway price."
There is much more in the story.

I'm hearing stories frequently of banks selling REOs far below market prices, only to have local investors flip the properties.

A reader sent me some info on a property in Redwood City that is typical. The lender turned down two short sale offers at close to $649,000, and then, after foreclosing on the property, the bank listed the property at $509,000. The property sold for $493,000 all cash, even though there were other offers above the list price.

What is going on? I think the lenders are swamped, and this is OPM (other people's money). The money doesn't belong to the people making the decisions, and it is hard for them to accept a short sale, and after foreclosure, it is probably easier for them to just take a check and get the property off their desk. The result is the banks make a series of less than optimal decisions, and they leave money on the table at several points in the process.

In the story above, Citigroup left $100,000 on the table with just this one property.