Foreclosures sold to investors likelier to be owner-occupied in a year

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Properties sold directly to investors in a foreclosure sale were more likely to be occupied by an owner one year later, compared with those that reverted to the lender, an Auction.com study found.

Owner-occupants were in a home on the same day one year after the scheduled sale date for 56% of foreclosures sold to a third party — typically a fix and flip investor — compared with 43% of properties the bank took back and became real estate owned.

There are a couple of reasons for this, said Daren Blomquist, Auction.com vice president of market economics.

"First, the majority of investors who buy at the foreclosure sale plan to rehab the property and resell it in a relatively short period of time — primarily to owner-occupants," he said. "This might not have been the case back in 2012 and 2013 when some of the larger institutional investors were using the foreclosure auction to help them quickly build up an inventory of rental homes, but now we are seeing more of the mom-and-pop investors at the auction.

"Secondly, local mom-and-pop investors are typically very efficient at turning around homes located in their area and so are able to return those homes to the retail market faster than it takes a property to go through the traditional REO sales process," said Blomquist.

Auction.com looked at various disposition strategies employed over the last year for more than 23,000 properties brought to a foreclosure auction in the second quarter of 2018 on its website. There were 9,291 properties sold at auction.

It analyzed sales to a third party during the foreclosure auction, along with a pair of strategies for properties that reverted back to the foreclosing lender: a sale via through the company's "Day 1 REO program," which immediately puts a property up for online auction if it was not sold to a third party; and traditional REO sales via the multiple listing service.

Nearly three-quarters of the properties that entered the REO inventory in the second quarter of 2018 resold within a year. The 26% that had not yet sold had been in REO inventory for an average of 428 days at the time of the analysis.

Winning bids on properties sold at auction were 115.4% of the lender's credit bid (typically the amount owed on the loan) compared with 97.1% of the "Day 1 REO" sales and 99.5% of the MLS sales. But the net proceeds — adding in the holding, repair and sales costs — on the MLS sales were just 79.3%. It was 91.9% for Day 1 sales and 110.4% for the third-party transactions.

Properties located in Opportunity Zones were garnering higher bids compared with the rest of the market. Of the 9,291 properties sold at foreclosure auction in the second quarter of 2018 — 844 — or 9%, were located in Opportunity Zones and they sold for 120.2% of the credit bid set by the seller at the foreclosure sale, while properties outside sold for 115.1%.

"Properties in Opportunity Zones sold at an average price point that was 24% below the average price point of properties outside of Opportunity Zones, but the higher execution relative to credit bid in Opportunity Zones is good news for sellers with inventory in Opportunity Zones," said Chief Business Development Officer Ali Haralson in the report.

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