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Distressed Auction Data Reveals Hidden Market Potential

jfennimore

New data shows fewer than one in four purchases at foreclosure and REO auctions involve financing, underscoring a substantial, untapped opportunity.


Nearly eight in 10 homes purchased at distressed property auctions are not financed by the buyer, representing a largely untapped market for the private lending industry.


An Auction.com analysis of 200,000 properties sold at foreclosure and bank­ owned (REO) auctions since 2018 shows that only 21% of foreclosure auction purchases and 24% of REO auction purchases are attached to some kind of financing by the buyer-either in the form of purchase financing at the auction or post-auction, stand-alone financing (see Fig.1).


A "WIN-WIN"

"There are not very many lenders who will lend on trustee sale properties," said Landon Cunningham, vice president of client relations at Inland Capital, a Spokane, Washington-based lender that provides financing for purchases at foreclosure auctions, also known as trustee sales in some states like Washington. "A lot of lenders would say that's lot of risk. ...


We've been doing it for so long that we're comfortable with the trustee sale process."


Cunningham and his brother got comfortable with the foreclosure auction process by purchasing about 120 properties at trustee sales across the Pacific Northwest in the early 2000s. They eventually started a real estate brokerage and then Inland Capital to help other investors use leverage to purchase at foreclosure auctions.


"We just kind of know the process, what to expect, so we can walk the clients through," he said, noting the lending side of the business now consumes most of his time. "If we can provide the funding source for them, they can go in and renovate the property, improve the community, make a profit. It's kind of a win-win."


TRENDS

Inland Capital is the exception, according to the Auction.com analysis, which matched Auction.com data with public record data to identify when the buyer used financing.

 

,Out of more than 135,000 foreclosure auction sales to third-party buyers on the Auction cum platform between 2018 and the first half of 2024) only about 6,700 (5%) had purchase financing tied to the auction sale. The majority of those purchase loans were short-term loans from lenders like Inland Capital that specialize in lending to real estate investors, also known as hard money lenders. An additional 21,000 (16%) were financed by the auction buyer post­ auction through a stand-alone mortgage, often in the form of a line of credit, commercial loan, or construction loan.


The trends were similar for properties purchased at REauctions. Of about 67,000 properties sold via REO auction on Auction.com between 2018 and the first half of 2024, only about 6,700 (10%) had purchase financing tied to the auction saleAn additional 9,200 (14%),were financed post-auction by the buyer.


Washington state, where InlanCapital is based and does much of its lending, had the highest share of foreclosure auction sales financed by the buyer of any state: 39'%. Washington was followed by Colorado at 38%, New Mexico at 36%, Nebraska at 36%, and New Hampshire at 35%.


States where the share of foreclosure auction financing was below the national average of 2.1% included Florida,(11%) and Louisiana, Kansas, Montana, and Indiana (all at 13%; see Fig. 2).



By Daren Blomquist

Private Lender, The Official Magazine of AAPL

Winter 2025, p. 12-15






 


 

 

 

 

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