Okay, we all know that REO’s (repossessed homes) have been up over the past couple of years.    So what happens if the market is flooded with REO’s and many of the REO’s don’t sell? The homes are often become damaged.

We think about damage from pests, theft and vandalism but one of the biggest issues come from water.  Foreclosures happen when people can’t afford their bills any longer.  At some point, this means that electricity is shut off.  This means that furnaces, A/C, Dehumidifiers, and Sump pumps no longer work.  In Illinois, a majority of basements get some water or moisture that seeps through the walls.  Most keep water issues at bay with sump pumps.

Mold has been a major issue with foreclosures. Foreclosures have been taking up to 6 months to process before it even hits the market. Then the home can stay on the market for a long time.  So we can see foreclosures that have been vacant for 12 to 16 months without electricity.

So who are the buyers for REO’s?  Mostly investors who are willing to invest in the properties and are able to take the financial risks.  Your average buyers are not able to buy them because most banks are not willing to give loans on homes that have mold or possible mold issues or the “Livability issues” that come from water issues.”

Agents have reported a drop in damaged REO sold in April. This may have influenced by an increase in short sales, which is up 5.5% in the past five months.

In early April, a government program began called Home Affordable Foreclosures Alternative (HAFA) which was designed to simplify the short sale process. HAFA has assisted in shortening the short sale process. Since the program was introduced, one of the greatest benefits is that less damage is happening to the homes, which will help the home market survive the “Flood” of REO homes.