Where do REOs take the largest piece of the home sales pie? According to data compiled by the independent real estate research and analytical firm Hanley Wood Market Intelligence, it’s Modesto, California.

In this Northern California city that describes itself as the heart of the agriculturally rich San Joaquin Valley, Hanley Wood found that 60.5 percent of total home sales closings during the third quarter of this year were for bank-owned properties. By comparison, the company says the national average is 28 percent.

Modesto’s official city Web site boasts that homeownership opportunities abound there, with a median home price of $131,000, substantially lower than the state median, which the California Association of Realtors reports was $304,220 in October.

In a Housing Intelligence blog posting by two of Hanley Wood’s analysts, aptly titled “Banktowns,” they note that a few years ago, suggesting that REOs could comprise the majority of all home sales transactions was unheard of, but several years of a depressed housing market and millions of foreclosures have made the scenario a reality for eight metropolitan statistical areas (MSAs).

Close behind Modesto in the firm’s rankings are Las Vegas and Flint, Michigan, both with 59.8 percent of their third-quarter transactions involving foreclosed homes.

The other five MSAs where more than half of the sales last quarter were REOs include: Detroit, Michigan (56.6 percent); Phoenix, Arizona (53.9 percent); Stockton, California, (53 percent); Bakersfield, California (51.8 percent), and Lakeland, Florida (51.5 percent).

“If there is a silver lining at least it means these distressed properties are moving their way through the system and back into the market,” Hanley Wood’s analysts wrote.