When lenders are the only bidders at foreclosure sales, they typically contract with a local Broker to fix up the home for re-sale, and put it into MLS to be sold eventually. That works well when houses are appreciating and sales are brisk. Now that sales have slowed down, there are fewer Brokers who want to spend the time and effort doing this, and there are more lenders with foreclosed properties on their books that are being eyed by government regulators.
Having vacant foreclosed homes sit idly while slowly deteriorating is bad enough, but when a condominium or home in a PUD, or mobile home in a park or on an individual rented space is foreclosed, it can cost a lender many thousands of dollars each month in extra expenses; just at the time when the lender has stopped receiving any return at all on its loan. That's when you want to approach the lender to buy some of his Real Estate Owned (REO) inventory.
There are a wide variety of lenders who hold REO property. Sometimes they are clear across country from the site where the property is located. They have no real knowledge of neighborhood factors or market conditions other than what has been gleaned from appraisals they have had done. A good reality check for these lenders is to take pictures of their collateral after the weeds have grown up all around it and junk has been tossed into the yard; and to include a police report or newspaper articles showing crimes committed in the neighborhood.
Photos and other negative reports can be Faxed, Emailed, or sent to the Loss Mitigation Department, or REO department, or to whomever is responsible for monitoring foreclosed properties. It's amazing how motivated lenders can become when their property has been posted with a “hazardous building warning” or “condemned” property sign, which should be clearly reflected in photos that are emailed to them.
Quite often lenders refuse to finance their own REO inventory, so other lenders have to be found. This can be a daunting proposition and require a lot of time. You can try to attract private investors, or co-venturers who will wholesale the property off to other entrepreneurs for the cash needed to buy the property.
Alternatively, when an institutional lender is loaded up with foreclosed properties, you might agree to buy one for cash if it will sell you 5 others with short term financing. Or you can agree to pay cash for a number of properties provided that the lender agrees to refinance other property you own. In the real estate sell off of the 1970s, lenders willingly loaned five times as much on other collateral as it was required to pay cash for their REO properties. The entrepreneur used one fifth of these loans to buy free and clear foreclosed houses, and secured the loans with raw land, which has always been hard to finance. Then he was able to offer the land at higher prices because financing was in place.
Could you do this too? Are there any lenders who are in trouble where you live?
Posted on Thursday, August 16, 2007 (Archive on Monday, January 01, 0001)
