Bank-Owned Homes Grew Rapidly at the End of 2025—Are We in a New Era of Distress?

When foreclosure activity reaches the REO stage, it represents the outcome of financial distress. The homeowner is no longer in the picture, the auction process has concluded, and the lender now owns the property outright. For real estate investors, this phase often marks the most visible—and actionable—point in the foreclosure cycle.

According to ATTOM Data Solutions, December 2025 delivered one of the most dramatic shifts in bank-owned inventory all year. National REO counts surged more than 53% month over month and nearly doubled year over year, confirming that the elevated foreclosure activity seen throughout 2025 is now fully materializing into lender-owned supply.

This acceleration matters. REOs don’t rise in isolation—they are the result of months of earlier distress working its way through the system. And as more properties land on bank balance sheets, investors may begin to see increased inventory, greater pricing flexibility, and expanded opportunity in certain markets.

December’s data suggests the foreclosure cycle is entering a new phase as we move into 2026.

National REO Inventory Surges Sharply

According to ATTOM Data Solutions, 5,953 REO properties were recorded nationwide in December 2025, representing:

• +53.27% month over month
• +92.72% year over year

This is one of the largest monthly increases in REO inventory in recent years. The year-over-year growth—nearly doubling from December 2024—confirms that foreclosure completions are accelerating, not slowing.

While Foreclosure Starts and Notices of Sale provide early and mid-cycle signals, REOs reflect real outcomes. These are properties that did not resolve through loan modification, reinstatement, or auction sale. Instead, they now sit squarely in lender portfolios—often awaiting disposition.

State-Level REO Trends: Where Inventory Is Building Fastest

Florida

Florida recorded one of the most significant REO surges in the country. Even as early-stage filings fluctuated in prior months, December confirms that a growing number of cases are now reaching completion.

• 427 REOs
• +37.30% MoM
• +202.84% YoY

California

California reversed earlier softness with a sharp monthly increase. While the state’s foreclosure process tends to move more slowly, December suggests stalled cases are finally resolving.

• 449 REOs
• +42.99% MoM
• +35.65% YoY

Ohio

Ohio’s REO inventory continues to trend higher, reflecting a steady conversion from auction activity earlier in the year.

• 179 REOs
• +37.69% MoM
• +62.73% YoY

North Carolina

North Carolina remains one of the fastest-moving foreclosure states. REO volume more than doubled year over year, underscoring how quickly distress advances through the pipeline.

• 152 REOs
• +24.59% MoM
• +102.67% YoY

Texas

While Texas REOs held flat month over month, the year-over-year increase remains striking. The state continues to convert distress into completed foreclosures faster than most judicial markets.

• 546 REOs
• 0.00% MoM
• +135.34% YoY

Why the REO Stage Is So Important for Investors

REOs differ meaningfully from earlier foreclosure stages and often appeal to a broader set of investors.

1. Banks become motivated sellers

Once a property becomes REO, it is no longer a loan—it’s an asset that carries maintenance costs, tax exposure, and reputational risk. Many lenders prioritize liquidation, creating opportunities for negotiation.

2. Due diligence is more accessible

Unlike auction purchases, REOs typically allow investors to:

• Conduct inspections.
• Review the title before closing.
• Obtain appraisals.
• Use financing, including non-recourse loans.

This makes REOs particularly attractive for investors seeking a more traditional acquisition process.

3. REOs reflect real market stress

Rising REO counts indicate:

• Fewer successful loan workouts.
• Auctions failing to clear inventory.
• Lenders accumulating properties.

When REOs surge, it often signals that broader housing pressure is becoming harder to absorb.

4. Retirement account investors gain flexibility

For investors using a Self-Directed IRA or Solo 401(k), REOs offer:

• More time for due diligence.
• Clearer transaction structures.
• Opportunities for long-term buy-and-hold strategies.

Compared to auctions, REOs align more comfortably with retirement account rules and timelines.

County-Level REO Insights: Where Conversions Accelerated

Looking beneath state totals, county-level data reveals where foreclosure pipelines are converting most rapidly.

Florida: Broad-based REO growth

Florida’s REO surge was geographically diverse:

• Lee County posted one of the strongest month-over-month increases, reflecting continued Gulf Coast stress.
• Orange County (Orlando) also saw meaningful growth, tied to earlier investor-heavy filings.
• Miami-Dade and Broward Counties remained elevated, contributing to statewide totals.

Investor takeaway

Florida’s REO growth is not isolated to one metro—inventory is expanding across multiple regions.

California: Inland markets drive the rebound

California’s December increase was led by:

• Riverside County, where delayed cases finally reached completion.
• San Bernardino County, continuing its role as a foreclosure pressure point.
• Los Angeles County, which posted moderate but consistent growth.

Investor takeaway

The Inland Empire remains the most reliable source of REO inventory in California.

Ohio: Central Ohio leads

Ohio’s REO growth was concentrated in:

• Franklin County (Columbus), which showed one of the strongest MoM increases.
• Cuyahoga County (Cleveland), contributing steady volume.
• Montgomery County (Dayton), adding to statewide momentum.

Investor takeaway

Central Ohio continues to offer visibility into future REO supply.

North Carolina: Rapid conversion continues

North Carolina’s YoY surge was driven by:

• Mecklenburg County (Charlotte)
• Wake County (Raleigh)

Investor takeaway

Despite a slower pace earlier in the fall, December confirmed that many cases have now reached completion.

Texas: High velocity, high volume

Texas’ REO inventory remains elevated:

• Harris County (Houston) led the state.
• Dallas and Tarrant counties contributed significantly.
• Bexar County (San Antonio) continued its upward trend.

Investor takeaway

Texas remains one of the most efficient foreclosure pipelines in the country—distress converts quickly.

How Investors May Use REO Data Strategically

REO data may help investors:

1. Identify markets where bank-owned inventory is expanding.
2. Anticipate pricing flexibility from motivated sellers.
3. Plan long-term rental or renovation strategies.
4. Align acquisitions with tax-advantaged retirement accounts.

Tracking REOs alongside Foreclosure Starts and Notices of Sale provides a full-cycle view of market stress—and opportunity.

Disclaimer

Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.

BiggerPockets/PassivePockets is not affiliated in any way with Equity Trust Company or any of Equity’s family of companies. Opinions or ideas expressed by BiggerPockets/PassivePockets are not necessarily those of Equity Trust Company, nor do they reflect their views or endorsement. The information provided by Equity Trust Company is for educational purposes only. Equity Trust Company and their affiliates, representatives, and officers do not provide legal or tax advice. Investing involves risk, including possible loss of principal. Please consult your tax and legal advisors before making investment decisions. Equity Trust and Bigger Pockets/Passive Pockets may receive referral fees for any services performed as a result of being referred opportunities.