Six years after the housing bust, lenders are still offloading homes that have been in foreclosure limbo. And they're stepping up their efforts.
In October alone, nearly 60,000 of those homes were scheduled to be auctioned off by banks, up 24 percent from the previous month and seven percent from a year ago, according to RealtyTrac, a housing data firm. That’s the highest level since May 2013.
These types of auctions do not typically attract traditional buyers. They appeal to investors with lots of cash who can stomach the idea of buying a home without stepping foot in it first. Many of the homes are occupied at auction time, which means potential buyers often can’t determine a home's condition before purchasing it.
While lenders filed notices about these auctions in October, not all of the homes at issue were put up for sale immediately.
The reasons behind the uptick in auctions are slightly different in every state, said Daren Blomquist, a vice president at Realty Trac. But the underlying theme is that banks are finally getting around to clearing a backlog of foreclosures that have been delayed.
Some of the delays were in states that require a lengthy court approval process for every foreclosure, such as Maryland. In other cases, states passed laws to slow down the foreclosure process or lenders bungled their handling of foreclosure documents. Some of the nation’s largest banks reached a settlement with state attorneys general to address those practices.
Separately, lenders also had an incentive to delay, said Greg McBride, chief financial analyst at Bankrate.com. They were basically waiting for home prices to rise, as they have in the past two years. That way they could get a better return on those homes, McBride said.
While there is no longer a deluge of foreclosures hobbling the housing market, the auctions that are underway are a reminder of the residual effects of the crisis. “The rise in foreclosure auctions indicates that the banks and the courts are preparing for a spring cleaning,” Blomquist said.
Homes that don’t sell at auction are typically then offered for sale in the traditional way, so if investors don’t spot the bargains they want, there may be more foreclosures available for the general public to purchase -- also known as REOs.
Buyers in Maryland, for instance, may see more of them on the market. The state had the highest foreclosure rate in the nation last month, with one in every 400 homes in some stage of foreclosure. The scheduled auctions in Maryland climbed 12 percent in October from a year ago. The number of REOs for sale shot up 190 percent.
Other states with the highest foreclosure rates were Florida, Nevada, Ohio and Illinois.
RealtyTrac also compiled data on foreclosure rates among the nation’s 20 largest metropolitan areas. Baltimore, where one in every 435 homes was in some stage of foreclosure, topped that list -- just ahead of Miami and Tampa.
Overall, foreclosure activity increased from a year ago in 10 of the nation's 20 largest metro areas. Among them was Washington, D.C., which does not require court approval of foreclosures. The city has had its share of foreclosure delays due to a local law adopted in 2010 that required lenders to offer struggling homeowners a shot at mediation before foreclosure. Now, lenders are moving forward with D.C. foreclosures.