BiggerPockets

1. The bank is the owner if this is an REO. There is no loan on it now.

2. They can sell for what ever they want if the market will pay.

3. There is time pressure as banks can not legally hold property for investment. They do have to clear it from their books.

4. There likely was something else that stopped people from bidding the loan amount at auction. That issue might now be over. If the property is priced right it will sell. You can offer what ever you like. If they feel it is too low they will tell you. Banks are not emotional about these things. They see REOs as problems assets that need to be cleared out.

John Corey

I tried to refrain from replying because this is my first, and it contradicts what many investors have been WRONGLY taught.

I'm a former REO Asset Manager for Ocwen and EMC Mortgage companies. I currently manage/sale REO properties as an agent.

First off, an asset manager's job is to sell the property for market value or higher, within 60 to 90 days.

Second; Banks can't hold investment properties? They often rent out their REOs for profit. And even when they're not rented, it's not uncommon for an asset manager to have a few properties in his/her portflolio for more than a year.

Dreaming? Yes you are dreaming.
If it were so easy to walk in on $300,000 in equity, the other 10,000 investors in your area would be all over it. That will drive up the price if nothing else will. Besides, the sun will stop burning before a bank would sell a property for under $100,000 with a $300,000 appraisal.

PROBLEMS didn't stop others from bidding at the auction? THE BANK DID..
The bank has valuations (BPOs and Appraisals) that tell them what the property is worth. Their attorney bids up to their pre-set amount. THE BANK COULD CARE LESS ABOUT THE $83,000 BALANCE IF THEY HAVE AN APPRAISAL AND BPO THAT TELLS THEM THAT THE PROPERTY IS WORTH $380,000. Do you think the bank has a problem with making a $300,000 profit?

WHERE DOES THIS STUFF COME FROM?

MOST IMPORTANT
Having worked as an asset manager for 2 major REO players; I nor the other 100 asset managers that I worked with, ever looked at the previous mortgage balance. Simply put, it had no bearing on what we listed it for, and ultimately sold it for. Also, most of the outsourced asset management firms don't even have access to these numbers, not that it would matter anyway.

And stop sending the Garbage along with your offers. We know about the property's condition. And since you want to buy it, we especially don't care about exaggerated assessments of the property. Simply put, we throw them in the trash without ever reading them. As an agent, I let everyone know that such items will not be forwarded to the asset manager. (Showing feedback is welcomed, but that stops at the offer phase)

Bottomline, Asset Managers have to make decisions within seconds, not minutes or hours. Most handle large portfolios and don't have time to " investigate" . This is why they have systems and procedures. A property goes on the market for a certain price; offers can be accepted or countered within a pre-set limit; and price reductions will occur at pre-set limits and times. That's it.

Will

Thank you Joshua, glad to be here.

Thanks for the warm welcome James. I will gladly participate as time permits.

I hope I didn't come on too strong in either of my 2 posts. It's just that far too often I read lots of bad information that helps no one.

Money can be made in real estate investing; through diligence, consistency, fairness, and information.

If an investor is out there looking " to get over" , they're probably wasting their time. There are far too many experienced investors out there willing to make a little less per deal, in exchange for consistency.

What's wrong with being fair and making marginal profits a couple times of month CONSISTENTLY?

The days where only a few have information are gone. It's competitive out there and serious investors act accordingly.

Once agin thank you James and Joshua.

Will

Originally posted by "FloridaREOagent"

The bank has valuations (BPOs and Appraisals) that tell them what the property is worth. Their attorney bids up to their pre-set amount. THE BANK COULD CARE LESS ABOUT THE $83,000 BALANCE IF THEY HAVE AN APPRAISAL AND BPO THAT TELLS THEM THAT THE PROPERTY IS WORTH $380,000. Do you think the bank has a problem with making a $300,000 profit?

This doesn't make sense, at least in Texas, because banks have a legal obligation to refund to the original homeowner all excess proceeds from the actual foreclosure auction (after paying off any junior lienholders). If their balance plus fees is $100,000 and the lender bids it upto $300,000 then the homeowner has a right to the other $200,000. So is the lender going to take that kind of risk because of a couple BPO's or appraisals? I don't think so.

Now I understand once the auction is over then they have some great profit potential, but artificially inflating it at the auction does NOT benefit the lender (at least in Texas).

Ryan,

Maybe I'm misunderstanding your post, or maybe your misunderstanding mine.

I was responding to the idea that

There likely was something else that stopped people from bidding the loan amount at auction.

Of course it would not benefit the lender to " artificially" inflate the price.

I was speaking to the fact that the lender would not likely stop at the loan balance amount when there is overwhelming evidence that the property is worth much more, such as this case.

And yes, in every state that I'm aware of, the previous mortgagor would be entitled to the surplus proceeds from the foreclosure auction.

Your post,

So is the lender going to take that kind of risk because of a couple BPO's or appraisals? I don't think so.

is correct but extreme. They probably wouldn't risk $200,000 after they have been guaranteed their balance plus expences, especially in today's environment. But in a more common situation such as this post's subject property, the bank will often outbid everyone else to make such a substantial profit.

It's important to note that most REOs aren't owned by the Chase's and the Suntrust's of the world. They're owned by other, often times smaller " Entities" . A great deal of them come from companies (Investors) that have purchased these non-performing assets (in Pools), prior to foreclosure. It goes without saying that the purchasers/investors didn't buy these bad debts to help out the lenders and break even. They bought these future REO to make a profit. How do you think they make this profit? By not leaving so much on the table.

Bottomline, most foreclosing entities have investors to answer to. The POOLs that I mentioned above, often involve REITs, stocks and/or other investment vehicles. Leaving a ton of money on the table for the sake of a guaranteed break-even, doesn't sit well with most investors.

So is the lender going to take that kind of risk because of a couple BPO's or appraisals?

While not losing money is extremely important, Profit Is The Name Of The Game; And earning a profit usually involves some risk. Calculated Risks.

Will

Chris,

Regardless of what the " Get Rich in Real Estate Today" tape peddlers say, no one can really provide you with a sure-fire negotiating strategy that works all the time, or even sometimes for that matter. BUT,

I'll give you and anyone else still reading, some of the best REO negotiating advice you're ever going to get. If you do take my advice, and have realistic objectives and goals, proper financing abilities, and all of the other things required of an investor, you will be a powerhouse in your market. Here it is...

Be A Pleasure To Sell To.

That's it.

How do you become a pleasure to sell to you're probably wondering.

Simple... If you're not willing to give the bank the price that they're asking for, give'em everything else they want.

What else do they want? And as important, what do they not want?

First, they want a Clear and Legible offer/contract to purchase. This is very important. Asset managers have to read many of these everyday, and many can be very difficult to decipher. This could delay a response for days or even weeks, allowing other offers to come in that you're now competing against. Remember, you want to be seen as a pleasure to sell to.

Definitely avoid sending a Fax-Of-A-Fax.

If your agent is still handwriting offers/contracts, ask him/her to use one of the many Forms software programs on the market.

Always use the forms specified by the listing agent. Don't get creative or allow your agent to. Those " special" forms offered by some " experts" won't get you very far with an asset manager.

Refrain from including petty contingincies. Either you're ready to buy, or you're not. If the seller/lender's documents allow a 5 day inspection period, don't ask for 10. Don't make the contract assignable. Don't ask to use your own closing agent. Remember your goal is to get the best price; you should at least strive to be a pleasure to sell to within all other areas of the deal. Besides, they're most likely going to say no to those things anyway, and when they do and you say OK, it's going to take even more time for them to respond to what has now become a counter-offer. With more time gone by, you risk the possibilty of competing offers.

Do make sure a pre-qualification/approval letter, or proof of funds is attached to the offer.

Do make sure a copy of the earnest money deposit is attached to the offer.

Don't send comps, repair estimates, or anything else not called for in the lenders offer instructions. This is a Big No-No as it provides the asset manager no pleasure in having more information than he/she can use.

Allow plenty of time for offer acceptance (at least 5 to 7 days). Most asset managers are so busy that they won't get around to your offer for at least 2 to 3 days, and quite often even longer. If your time for offer acceptance expires, you could lose out unintentially. Of course if you really have to move on after 3 days, then allow 3 days; but if you can wait forever for a good deal, then don't enter 3 days.

Bottomline, give them exactly what they want in a nice and neat fashion, and your REO acquisition abilities should greatly improve; and you will soon be seen as a pleasure to sell to.

Will

Originally posted by "FloridaREOagent"

banks have a legal obligation to refund to the original homeowner all excess proceeds from the actual foreclosure auction (after paying off any junior lien holders).

And yes, in every state that I'm aware of, the previous mortgagor would be entitled to the surplus proceeds from the foreclosure auction.

For Clarification,

the original homeowner is entitled to surplus proceeds from the Foreclosure Auction, not the sale to come later-on after the property is REO.

FloridaREOagent,

Good to have you on board.

Your posts (the quote above and prior) are creating confusion. You are also speaking as if the information applies evenly across all states when that is not the case.

1. It is illegal for a federally regulated bank to hold investment property. They can only own property necessary for the normal course of business. They can not use the bank's money to invest. The law was put into place after the 1929 crash as some banks were speculating in real estate rather than focusing on lending money.

The regulators who check the books of the bank will require excessive capital reserves for any property taken back in a foreclosure. That is to hedge the position and at the same time to motivate the bank to dispose of the asset. The bank can hold the property for as long as is needed to sell the property but it will cost the bank a lot of capital compared to a performing loan. Hence the bank is losing money holding the property on its books.

2. As Ryan pointed out and you slightly sidestepped a bank will not overbid at a foreclosure auction. They do not own the property. They want to get paid back what they are owed. Any money bid over what they are owed is going to the next junior lien holder. If there is a surplus and there are no other liens then the extra cash goes to the owner who is losing the property.

As an example...

Lets assume the bank is owed $100K including principal, insurance, legal, and other costs. All in they are owed $100K an no more. Assume the property is work $300K and that is a conservative valuation. Then assume that the owner lost a lawsuit and have outstanding judgments that caused liens on the property. Two exist. One for $75K and one for $110K.

If the bank who triggered the foreclosure opens the bidding at $100K (as is the custom) then that is where the bidding starts. For what ever reason lets assume the bidding goes up. The bank is not going to bid more than $100K to win the auction. Even if the property was worth more the bank would not want to write a check to pay for a bid over $100K. They do not want to put more money into the deal to win the auction. The extra money above the $100K bid would be handed over to the junior lien holders.

Conclusion?

Banks have no interest in bidding above what they are owed. The best they hope for is someone outbids them and they get all their money back. They get to go back to making loans.

Note that I am talking about deposit taking firms that are regulated (hence the use of the term: bank). I am not talking about private investors or any other group. Even if we wanted to expand the conversation the example above shows why a bidder still might want to avoid bidding more than they are owed.

John Corey