Preliminary Protocol: The investorâ€™s worst nightmare

Truthful, patient, reputable, honest and resourceful businessmen and women in the REO market are an endangered species. Although there are a few out there, they are outnumbered by those who make their work that much harder.

For example, certain procedures banks use make sense. Proof of funds is enough to see you’re dealing with someone who has enough cash to proceed. An LOI can specify interest and provide specific parameters. Unfortunately, for some involved in the bulk REO market, these don’t cut it anymore.

A new wave of individuals have become unnecessarily adamant about using their own documents. When asked why, all they say is “it’s standard protocol”. Somehow their LOI or POF forms are magically more enforceable. Or perhaps the brokers involved (who oftentimes are kept secret until the fee agreement is mentioned) aren’t honest enough to say they prefer to have their company name & logo on the document because paranoia tells them they won’t be compensated otherwise. It’s even too much of an inconvenience for them to specify what terms your paperwork may be missing just so you can edit it.

As a result, buyers all over are wasting money on retainer fees from their attorneys reviewing contracts that A) could easily be consolidated, and B) rarely lead to the closing table.

Another alteration (and probably the most counterproductive one yet) is the request for a deposit from buyers (commonly 10%) BEFORE due diligence! How on Earth is a buyer even going to determine what that 10 percent equates to when the purchase price isn’t even agreed upon?

I am sincerely open to listening to anyone who can explain how sellers will benefit by implying that the purchase price is pre-determined and asking buyers to blindly deposit funds? All I’ve heard thus far is that it’s meant to weed out those who are “fishing”. Aren’t all buyers fishing, searching, looking for a way to benefit their portfolios?

The REO market appears to be driven more by emotion than logic. Fear of losing what has yet to be acquired.

It is just amazing that so many sane said-to-be-professionals could allow a couple of 1-2 page contracts stop them dead in their tracks. A little flexibility, problem solving and common sense is all it would take to increase business efficiency.

One of the many mysteries I suppose.

Do NCND's serve a purpose?

It’s a rhetorical question that every broker should ask themselves because transparency battles kill more deals than one has the time to count. There is a paranoia that spreads like wildfire, causing them to protect their buyer’s/seller’s contact information until the other party walks. And if they don’t, oftentimes the broker is shocked to learn that the buyer & seller already work together directly, leaving a stain on his record for failing to accurately prescreen the deal to avoid wasting time.

The severity of this seems to increase along with the size of the deals brokers handle. When they begin dealing with “customizable packages”, the probability of actually catching someone going around you declines to almost zero because A) the package is typically customized after the contact information is disclosed, and B) people don’t willingly hand you incriminating evidence so you can sue them. If the broker was asked in court to describe the particular deal, they wouldn’t have a clue.

Furthermore, there are loopholes big enough to drive an oil-tanker through. Just off hand, think of all the junk portfolios you’ve seen shopped for months. There are countless, gullible intermediaries who take the bait and disclose actual direct buyers. When that particular deal ends, the middleman is cut out and the quality tapes are brought out for Mr. Deep Pockets to review.

Circumvention can be compared to the Boogie Man – everyone is afraid of him, but nobody has actually seen him. There are no horror stories I have ever heard of lawsuits taking place due to a one or two-page contract being violated.

Where are these supposed evil-doers who betray those who bring them business over one deal? Which brokers possess the x-ray vision necessary to track what buyers, some of whom are multi-million dollar corporations, are doing and who they’re speaking to?

One can only control their own honesty and professionalism. With all of the money floating around out there, far more profitability lies with pursuing deals rather than lawsuits...unless you’re an attorney. And when you can finally afford to upgrade, buying for yourself will put you in the driver seat and make circumvention irrelevant.

NOTE: This is not meant to be used as a reference. It is merely the opinion of the author based on his personal experiences.

Food For Thought

Preliminary Protocol: The investorâ€™s worst nightmare

Do NCND's serve a purpose?