REO Trash-Out Issues

"One Man's Junk Is Another Man's Treasure"

With all the potential legal issues that surround REO transactions—from the liability-shifting master listing agreements to the lack of SPDS on these “as is” properties—attorney Rick Mack of Mack, Drucker & Watson in Phoenix didn’t expect to have “trash outs” become the top REO-related claim facing agents.

What is a trash out? “Oftentimes after a bank forecloses, the former occupants will vacate the house but leave some of their personal property behind,” explains Mack. “REO listing agents show up and have trash-out companies remove the personal property. Typically, they’ll throw it away.”

That’s when the trouble starts. The former occupant may return and claim that amongst the trash remaining in the home was a stamp collection, box of comic books or other item worth significant money.

What should agents do to protect themselves from these claims? “If there are items in the property that look remotely like anything other than trash, document them,” Mack says. “I recommend you take photographs and inventory what’s there. If possible, have a third-party, independent witness there with you when you do.”

If you document it well enough, you can probably throw the stuff away, says Mack. But if the economics and your broker permit—or if you suspect the property is, in fact, valuable—you may choose to store the materials until you hear from the former owner. 

Occupants can feel rushed to get out of a property that has gone into foreclosure, and they are generally not in a good state of mind about the process. An increasing number of claims is the result. When agents find themselves facing a pile of junk in an REO property, they are wise to imagine what evidence they’ll want to have on hand to prove to a judge that the junk was truly trash, not treasure.