Who Owns Your Neighborhood? The Role of Investors in Post-Foreclosure Oakland
Since 2007, there have been over 10,000 completed foreclosures in the City of Oakland. With the much needed attention given to foreclosure prevention, there has been very little focus on what has happened to properties after foreclosure. This report seeks to fill this gap. The point of departure for our analysis is the precise moment of loss—when the foreclosure process is legally complete and a home is sold at a trustee sale. From there, we tell the story of who is benefiting from the new opportunities created out of the life altering misfortunes of others.
The collapse of housing values in Oakland brought about by the foreclosure crisis has opened up a colossal opportunity for those individuals and corporate entities with the financial resources to play the real estate investment game. Our analysis shows that eighty one percent of the 10,508 completed foreclosures in Oakland (since 2007) reverted to REO status; that is, they ended up being owned by banks, other financial institutions, or one of the Government Sponsored Enterprises (GSEs). However, that status—in large part—has proven to be only temporary, revealing just one aspect of Oakland's post-foreclosure reality. In fact, 16 percent of foreclosed properties never reached REO status, and instead were purchased by investors at trustee sale auctions. Moreover, investors acquire a significantly higher volume of properties post-foreclosure through direct purchases from financial institutions. Our analysis reveals that—as of October 2011—investors had acquired 42 percent of all properties that went through foreclosure since 2007 in Oakland. Of these properties acquired by investors, 93 percent are located in the low-income flatland neighborhoods of the city. Further, only ten out of the top 30 most active investors are located in Oakland.
Our analysis also revealed that while non-investor individuals are very rarely able to engage in the trustee sale auction process (due to the fact that cash is required to purchase at auction), they have demonstrated a significant demand for affordable homeownership opportunities through REO purchases. Between 2007 and October 2011, non-investor individuals acquired 55 percent of the REOs sold by banks and the GSEs, even in the face of the competitive advantage that cash investors wield at multiple stages in the post-foreclosure home buying landscape. Further, we found that non-investor individuals or entities were six times more likely than investors to retain ownership of their REO or trustee sale acquisition. In large part, the post-foreclosure transaction churn grinds to a stabilizing halt when non-investor purchasers are able to successfully engage in the process and buy a home as an owner-occupant.
- Of the 10,508 completed foreclosures in Oakland between 2007 and October 2011, 81 percent reverted to REO status (owned by a bank, GSE or government entity) at the trustee sale. As of October 2011, 69 percent of these REO properties were subsequently sold by their foreclosing beneficiary; the remaining 31 percent of REO properties were still owned by a financial institution.
- Deutsche Bank foreclosed upon 1,511 properties in Oakland between 2007 and October 2011, the most of any financial institution. US Bank, Wells Fargo, Fannie Mae, and Bank of America are the other institutions among the top five foreclosing entities.
Speculative Real Estate Investment Pipeline
- Of all completed foreclosures in Oakland between 2007 and October 2011, 42 percent were acquired by investors, either at trustee sales or through direct purchases from financial institutions. Investors acquired 45 percent (2,681) of the 5,923 REOs sold by banks, GSEs, and government entities.
- Investor activity at trustee sales of Oakland properties picked up significant momentum after 2008, rising from a 7 percent share of all trustee sales in 2008 to nearly 25 percent in 2010.
- Of the 886 homes acquired at trustee sale and subsequently flipped by investors, 312 were purchased by a second investor.
Investor Profits Draining Local Wealth
- Only ten of the top 30 foreclosure investors in Oakland are actually based in Oakland.
- 93 percent of investor-acquired properties are located in the low-income flatland neighborhoods of Oakland—the same communities targeted by predatory lenders in the years preceding the foreclosure crisis.
- As of October 2011, Community Fund LLC had flipped 120 homes with an average acquisition price of $124,535 and an average selling price of $195,256, for an average gross gain of $70,721 per property.
As of October 2011, REO Homes LLC had flipped 10 homes, with an average acquisition price of $128,270 and an average selling price of $315,250, for an average gross gain of $186,980 per property.