The housing market is showing some big shifts in 2025, and one area catching the eye of real estate professionals is the sharp rise in bank-owned properties—also known as REOs (Real Estate Owned homes). Nationwide, these distressed listings jumped more than 30% year-over-year, opening the door to both risks and opportunities for investors.
So, what does this trend really mean, and how can you position yourself to take advantage of it? Let’s break it down.
Understanding the Three Stages of Foreclosure
Before diving into opportunities, it’s important to understand how properties get to the REO stage. The foreclosure process typically unfolds in three steps:
- Pre-Foreclosure (Early Default)
This stage begins when a homeowner falls behind on mortgage payments, and the lender files a notice of default or lis pendens. Investors who act quickly here can negotiate directly with owners—sometimes arranging a short sale, deed-in-lieu, or cash-for-keys agreement—often before the property ever reaches auction. - Auction Stage
If the loan isn’t resolved, the property heads to a foreclosure auction. Bidding can be competitive and requires preparation, but it’s a chance to purchase homes at potentially steep discounts. However, auctions often demand cash, quick closings, and careful title research. - Bank-Owned (REO) Properties
When a property fails to sell at auction, it reverts to the lender and becomes bank-owned. These REOs are then listed for sale—usually through real estate agents or investor channels. They can be priced below market value, but often need repairs or carry complicated title histories.
Why the Spike Matters
Recent data shows:
- REO properties increased by over 34% in the past year.
- Foreclosure starts rose by double digits, signaling more distressed homeowners entering the pipeline.
- Auction sales also climbed, showing that investors are already moving in on these opportunities.
Put simply: distressed inventory is growing. For investors, this means more chances to find deals—but also more competition from others who are tracking the same trends.
Where the Opportunities Are
Each stage of foreclosure offers its own set of strategies:
- Pre-Foreclosure: Best for those skilled in negotiation, willing to help homeowners exit a tough situation while picking up property below market value.
- Auction: Attractive for experienced investors who can move quickly with cash and have the ability to handle the risks of buying sight-unseen.
- REOs: A more traditional buying experience since they’re often listed with agents, making them more accessible for new investors—though discounts may not be as steep as at auction.
Data-Driven Investing in 2025
The investors seeing the best results aren’t just waiting for listings to pop up—they’re tracking foreclosure data at the ZIP code, city, and county levels. This helps them spot which markets are heating up and act before opportunities become mainstream.
By following foreclosure filings, auction schedules, and REO listings, you can position yourself to identify undervalued properties early. The difference between knowing six months in advance versus after the crowd shows up can mean thousands of dollars in profit—or missing the deal altogether.
Final Thoughts
The 2025 housing landscape is shifting, and distressed properties are becoming a bigger piece of the puzzle. With REOs and foreclosure activity on the rise, investors who act strategically—armed with data, preparation, and flexibility—will be in the best position to capitalize.
Whether you’re aiming for off-market deals in pre-foreclosure, competitive buys at auction, or discounted REOs, the opportunities are there. The key is knowing where to look, and being ready to move when they appear.