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There is a shadow cast across the real estate market today in the form of real estate owned, or REO, properties that have accumulated in the wake of the foreclosure crisis.

REO is the term used for properties that are owned by a lender, in most cases a bank, after a property goes to foreclosure auction and the minimum bid is not met.

The mortgage crisis coupled with the recession meant banks became landlords as their inventory of properties grew exponentially.

Bank-owned property creates a shadow inventory that could flood the residential and commercial real estate markets even as experts try to predict what the future holds for Northern Colorado.

The supply

Loveland Commercial LLC partner Don Marostica estimates there is $15 million worth of bank owned property in Northern Colorado.

Marostica said he has examined Bauer Financial Ratings for area banks and driven through the region looking at empty homes without for sale signs.

“As you drive around, and I have done a lot of that, both commercial and homes, a lot of them are sitting empty, they are see-through,” Marostica said, “especially in Johnstown and Milliken, the small towns.”

Shadow inventory has the potential to artificially drive down market prices as banks

try to rid themselves of property at lower than market prices. Many banks will hold on to a property until consumer confidence returns and the market improves.

Mark Bower, Home State Bank executive vice president and chief financial officer, said in Northern Colorado, banks own more property than they would like.

Home State Bank is carrying about $6 million in bank-owned property, a majority of which is in vacant lots, Bower said.

Once Home State gets a property, Bower said it determines the best course of action to maximize its return and minimize the impact on the community.

“We are really trying to be really conscious of what we are trying to do to the overall economy,” Bower said. “We feel it is part of our banking job to be that intermediary to hold property during these really bad times.”