Negotiating with the bank when buying a foreclosure

[Shawn Jacobs]

Hi Everyone, 

Being new to BP, I thought I would dive in and get involved! One of my previous jobs, before I traded in my dark cubicle and handful of sick days, was as a supervisor of an REO Department, for a large Banks in Michigan, where I supervised the sales, leasing and management of the statewide ROE portfolio. I came across a few tips that have helped me with buying properties directly from banks and I thought I would share.

Most Community and Regional Banks have internal auditors, that strictly monitor the activity of the banks departments. Something I have found very useful, when negotiating with these banks is knowing most banks are required, by auditing standards, to counter all offer. Ever wounder why they countered when you are so close to list price? Most of the time it is because the have to. So depending on the situation, stick to your guns and submit the offer highest and best. Most of the time they are trying to simply recoup as much as possible, but will take much less. 

The structure of most banks are the same; there are Special assets, collections and REO departments. The Special Assets department decides when it is time to restructure the loan, foreclose or accept a forbearance agreement on commercial properties. A collections department is essentially the same thing, but typically handle only residential properties. An REO Department handles all properties, once they've gone through foreclosure and need to sell the asset. If you can developer relationships with someone in Special assets or collections, you will have a much greater chance of buying a property heavily discounted. Most banks are required to only accept "Fair Market Value" once moved into an REO Department. If you can pick up a property prior to this point, they are more apt to negotiate. Some Special Asset departments will tell you what they plan on bidding at Sheriff Sale, so you can simply out bid them by $1. The bank gets paid, they don't get the property back and you can get a $200,000, for the loan balance the borrower owed!

I know it's not much, but it has helped me in the past!