Financial institutions have reduced greatly the amount of repossessed real estate on their books following the Great Recession.

Scott Southwick, chief credit officer for Spokane-based Inland Northwest Bank, says nonperforming assets, which include repossessed—or bank-owned—real estate, are trending downward industrywide.

“Our numbers are down, although not quite what I call normal,” Southwick says.

INB reported its nonperforming assets were valued at 2 percent of total assets as of Sept. 30, down from 3.8 percent a year earlier. INB, like most Spokane-area banks, hadn’t reported year-end results as of last week.

At its peak a few years ago, nonperforming assets swelled to more than 4 percent of INB’s total assets, Southwick says.

While the bank’s asset quality is on an improvement trend, Southwick says he considers the normal nonperforming asset ratio to be at or below 1 percent of total assets.

Spokane-based Sterling Bank had 27 bank-owned properties in five states listed on its website last week, down from more than 100 properties a few years ago.

“It comes down to an improving economy and buyers being optimistic that it’s a good investment,” says Sterling’s chief credit officer, Steve Hauschild, of bank-owned real estate sales.

Prices for Sterling’s currently listed properties range from $110,000 for a small commercial building in Pilot Rock, Ore. to $1.6 million for an office complex in Sacramento, Calif.

All seven Washington state properties on Sterling’s bank-owned list are on the west side of the state.

The closest of Sterling’s bank-owned properties to Spokane is an office building in Post Falls, listed at $299,000, with a sale pending.

“We’ve seen strengthening in the market and multiple bidders on properties,” Hauschild says. “We feel we’re getting fair prices.”

As its bank-owned inventory shrinks, Sterling is able to redeploy some of its employees involved in asset disposition to other roles in the bank, he says.

Spokane-based AmericanWest Bank also has reduced its inventory of bank-owned real estate despite acquiring eight banks over the last three years, says Michael Koch, an AmericanWest executive who oversees the disposition of bank-owned real estate. 

“We’ve seen very dramatic improvement in our owned real estate,” Koch says, adding, “All banks are seeing improvement in that arena.” 

AmericanWest had 10 bank-owned commercial and residential properties posted on its website as of last week.

“The website has half of what we started with last year,” Koch says.

Only two of the currently listed properties are in Washington. One listing is for five lots priced at $441,000 in Liberty Lake’s Legacy Ridge neighborhood. The other Washington property is a commercial building in Moses Lake listed at $340,000.

The bank also has two properties listed in North Idaho and six in Utah. Of those, asking prices for four commercial properties range from $68,000 for a lot in Spirit Lake, Idaho, to $1.1 million for a 592-acre farm near Manti, Utah. Prices for four residential properties range from $60,000 for a 111-acre parcel of rural land in Cache County, Utah, to $1.7 million for 215 acres of land in Eagle Mountain, Utah.

During the Great Recession and its protracted recovery, land made up the most of AmericanWest’s repossessed and foreclosed real estate in terms of dollar value, Koch says.

“When the economy faltered, a lot of people were building new subdivisions,” he says. “We ended up owning a lot.”

Coming out of the recession, though, the market for land in approved subdivisions has revived, he says.

Homebuilders and developers leading the recovery bought bank-owned lots that were ready to build on first, Koch says, adding, “We ran out of those a few years ago.”

Then builders and developers turned to bank-owned land in approved subdivisions that still needed infrastructure to serve them.

At the Legacy Ridge neighborhood in Liberty Lake, for example, AmericanWest took over unsold portions of the multiphase development from Coeur d’Alene developer Marshall Chesrown in lieu of foreclosure.

Copper Basin Construction Inc., of Hayden, Idaho, bought some ready-to-build lots there a couple of years ago from AmericanWest and is developing the 70-lot Parkside at Legacy Ridge phase of the development.

AmericanWest had another 200 acres of land in Legacy Ridge with unimproved lots that languished until the inventory of improved lots throughout the Spokane area had dwindled, Koch says.

Holt Homes Inc., a Vancouver, Wash.-based developer and homebuilder, bought that acreage recently.

Larry Soehren, president of Kiemle & Hagood Co., a Spokane-based real estate brokerage and property management company, says he’s handling a decreasing number of bank-owned properties. 

“All of our traditional receivership assignments with various banks have been sold,” he says. “I’m only acting as a receiver for one unique situation right now.”

He says that property currently is in a work-out scenario between the creditors and the debtor.

“Things have gotten better or banks have worked through a good chunk of their distressed properties,” Soehren says. “Banks in general are reluctant to take back property unless they’ve exhausted all other remedies.”

He says the last bank-owned property he handled was Painted Hills Golf Course, at 4403 S. Dishman-Mica Road, which Black Realty Inc., of Spokane, bought in October after submitting the sole bid to satisfy the former owner’s debt of $797,000.

Koch says almost all other sales of AmericanWest’s bank-owned properties have been handled through real estate agents.

“Auctions can move real estate quickly, but generally at a lower value,” he says. “At the rate we’ve been selling, we don’t need to do that.”

Brandon Marchand, a real estate agent with the Spokane Home Guy Group, is the listing agent for AmericanWest’s remaining Legacy Ridge lots. He says he’s seeing a drop in the number of bank-owned properties coming on the market, although the market hasn’t recovered fully.

“We won’t be sold out any time soon, but the numbers might not be as high,” he says, of bank-owned properties for the coming year.

Marchand also says he’s seen multiple interested parties for certain properties, which helps to keep prices stable.

Spokane Teachers Credit Union also has seen a long-term downward trend in delinquent loans and repossessed properties, says Bill Before, chief financial officer for the Liberty Lake-based credit union.

At year-end 2013, STCU had 13 foreclosed properties valued at a total of $1.5 million, Before says, down from 17 properties valued at $3.7 million a year earlier.

The credit union’s total loan charge-offs dipped to 0.7 percent of total assets at year-end, down from a peak of 1.6 percent in June 2011, Before says, adding that charge-offs haven’t dropped to prerecession levels, when they were less than 0.2 percent of assets. A charge-off is a debt that the lender has determined is unlikely to be collected.

“If the trend continues, it’s going to take a year or two to get back to (prerecession) levels,” Before says.

INB’s Southwick says he expects to see continued improvement for a while. “A degree of optimism is justified for the next year or so,” he says.

If interest rates climb significantly, however, it could slow or halt that improvement, Southwick says. “It could be rough if we experience a significant increase in rates,” he says.

INB, which doesn’t post REO properties on its website, usually lists them with real estate agents.

In the last six months, Southwick has seen competing offers for bank-owned properties—something that hadn’t, until recently, occurred since before the Great Recession.

Southwick also says he’s seeing fewer requests for short sales in which a borrower seeks to sell property for less than the amount owed.

“Lenders don’t like short sales, but in some cases, it’s the better option. If we can see that a foreclosure is going to take four to six months, maybe we can get it resolved now and save the costs of delay,” he says.