Banks’ Latest Strategy: Delay REO Properties for Sale

Thousands of foreclosed properties across Florida are in limbo right now. Distressed homeowners abandoned them while banks delay their official takeover of the properties.

According to data, lenders and banks have canceled almost 50 percent of REO properties for sale in some areas of the state, adding to the increasing stockpile of abandoned and vacant homes.

Industry experts are concerned that the current strategy of lenders and banks to delay REO properties for sale would jeopardize whatever the progress was made for the housing recovery and add more problems on homeowners and condominium associations that rely on fees to maintain common areas and facilities.

Real estate consultant Jack McCabe said that the current strategy would only depress further the housing prices. He added that many abandoned homes that are not yet turned into REO properties for sale are left neglected, and thus pulling down values of all nearby homes.

It used to be that lenders and banks look at foreclosure as a way to recover their losses. However, with the drop in housing prices banks chose to postpone foreclosure sales because once they take possession of the foreclosed property, they will be held liable for them and will be required to pay for fees, taxes and maintenance, according to industry watchers and analysts.

Cleveland State University clinical professor of law Kermit Lind said that lenders and banks know that foreclosed properties could remain unsold on the market for 18 to 24 months. And while they remain unsold, the costs incurred by banks for taxes, fees and maintenance increase every month.

But some bank officials denied that they are delaying REO properties for sale. They said that the state government initiated some of the delays by imposing moratoriums on repossession. Furthermore, they said that federal rescue programs are requiring them to negotiate with distressed homeowners first before taking possession of properties.

Defense attorneys and judges agree with bank officials that federal rescue programs and moratoriums have played crucial role in slowing foreclosures. They pointed out that adding to the problem are stalled foreclosure cases in courts.

Judges set up REO properties for sale but lenders have the option to cancel them for various reasons. And once it is cancelled, the case would not be opened in court again unless requested by banks.

By Cassiano Travareli