Reno Foreclosure Blog

Many of the people I talk to still haven't heard of the term "shadow inventory". What is shadow inventory?

Shadow inventory consists of existing and future bank owned foreclosures that have not yet been put on the market. The banks manipulate "Listing" inventory to keep prices from falling even more than they already have. The Reno home sale market, in the last 12 months, already consisted of approximately 75% foreclosed or pre-foreclosed properties (short sales). Shadow inventory also includes the homes where the owners have quit making their mortgage payments (defaults) but the banks have postponed the foreclosure process. Many of these situations involve a request for a loan modification, but I have heard numerous stories where a home owner quit making payments over a year ago, still lives in the house, and is just waiting for papers to be served.

The banks don't pursue the foreclosure because they are already swamped with past foreclosure inventory and the banks would prefer to have someone living in the home, rather than having the home sitting vacant or get "trashed" as the angry owner moves out.

Shadow inventory also consists of the homes that owners have requested a loan modification but will be denied or will eventually default on again. It is estimated that more than 50% of loans that have been modified, default again within 6 months and the percent that get approved are low.

These are some of the reasons why we are seeing more Short Sale Listings in the Reno market (one of my previous blogs discusses Short Sales). 2010 will be the year of the Short Sale. The government is now encouraging and financially supporting banks to pursue short sales instead of foreclosures, and banks are beginning to see the financial advantage of a short sale compared to a foreclosure. As stated previously, 75% of all sales in the last 12 months were comprised of bank owned foreclosures and short sales. The highest percentage of past sales was foreclosed properties (REO's). That is changing. The highest percentage of "current" listings are now Short Sale properties (see previous blog on market conditions).