According to the first quarter 2010 tally, “other real estate owned” — properties foreclosed on by banks to recoup money from borrowers failing to pay back loans — made up 0.91 percent of the assets of institutions in Tennessee, according to the Federal Deposit Insurance Corp.

While that number itself may seem small, it dwarfs the national average of 0.35 percent for U.S. banks and is up from 0.53 percent one year ago.

Of the banks based in Middle Tennessee, these properties account for 0.89 percent of the local banks’ assets and $210 million in value on the banks’ balance sheets.

Tennessee, which has not had a bank failure in the economic downturn, is still in better shape than floundering markets such as Georgia, where failed real estate was 1.23 percent of assets.

But local and national banking experts said Tennessee’s high amount of bank-owned real estate compared to the rest of the country shows how deeply Tennessee was affected as the housing market crumbled.

“[In many instances], the banks lent on the concept that you’ll always have real estate inflation,” said Tom Lawless, a Nashville attorney who helps banks recover money from borrowers.

The “other real estate owned” on banks’ books usually represents the worst of the loans they’ve worked through. Standards vary between banks for when borrowers require extra attention, how much leeway they get to restructure loans and when legal action such as foreclosure is necessary.

The number doesn’t necessarily reflect what shape a bank will be in to lend, experts said, but it does highlight a difficult challenge for many lenders.

For instance, FDIC data showed GreenBank holds nearly 2.7 percent of its assets in bank-owned properties, about three times the state average. Jim Adams, chief financial officer, said the institution has been more aggressive than other banks about processing bad loans and writing down the true value of property.

“A lot of banks are in the state of denial, and they’re not as aggressive, at least in my opinion,” said Adams, who credited the Greeneville bank’s tactics with improving earnings in the first quarter.

Mark Muth, a Nashville senior research analyst with Howe Barnes Hoefer and Arnett of Chicago, said individual banks can have higher numbers because they’re aggressive.

But that doesn’t account for the real estate “speculation” near Nashville, Memphis and parts of eastern Tennessee that he said exceeded other parts of the country and made for lending destined to go bad.

Banks look to sell the real estate on their books, sometimes at discounted prices to real estate agents or developers who think they can “flip” a house for profit, jump-start a housing project or turn around a failed retail center.

But in the meantime, each property is a drag on banks’ books and symbolizes a project that might have spurred economic development under different circumstances.

David Luecke can tell you about hundreds of them. His company, Capitol Homes Inc. of Franklin, emerged from Chapter 11 bankruptcy protection in April after the lagging real estate market brought down his sprawling home construction and land development operation.

Luecke, who now focuses on custom homes and repair in the wake of May’s historic flooding, estimates that he owned about 600 lots in various stages of development.

He was able to sell the majority, but lenders who bankrolled his projects seized about 200, he said. Now, much of the land will revert to agricultural use or sit unused with nobody able to develop it in a depressed market, he said.

“Clearly it would be better off raising goats than having a subdivision,” he said.

Going forward, experts say banks will feel continued pain if they don’t value their failed real estate properly — stringing out the losses they and their borrowers already have taken as they try to sell the property.