Residential Real Estate Agent · Long Beach, CA · Member since 2008 · 432 posts · 63 votes
I don't need to know how to find REO listings or how to contact REO agents.
I want to find out how a few investors in my area seem to be getting properties inbetween foreclosure and the property going back to the bank. I have seen this happen more often and I can't figure out how they do it. For example, title will show the investor took the property from Recontrust Co. for 50% of what was owed on the first loan (second was totally wiped out). The investors then wait a few months until the property qualifies for FHA and then list it for huge profit. As far as I know, these investors are not buying with cash at the courthouse because the first liens are prohibitively high. Can you help me figure this out?
After the bank forecloses and before they even go to an asset management company. Somehow they get them in between these two stages at 50% of what the bank took it back for or would be taking it back for.
They are not part of a big bulk sale. I guess it could be a handful of properties at once. I personally know one of these investors and in the past 4 months he's had about 5 of these done and he won't give any information.
I do not know the answer, but let me give one possible secenario that seems plausable to me.
He attended the foreclosure sale and noted the properties that did not sell and who owned them (bank) and who represented them (attorney) at that sale.
You then, immediately after the sale, but before they leave the courthouse, approach the lawyer and get his information to submit an offer for the property. If it is the best that the bank thinks they can do they may agree because it also reduces their need to pay their REO "agent" commission which in turn reduces the loss for them if the price is reasonably close to what they would have gotten thru the REO listing process.
I use a similar process at tax sales for what may become surplus property for counties.
I like how you think Jim. We've been on the same page for a while.
May I ask if this procedure is suitable enough for a long term buy and hold business plan?
It almost must be a long term plan as most properties picked up this way (tax sales) have a reclaimation period during which it would be unwise to do any improvements as the courts may not approve their repayment by the reclaimer.
I have a property now that I am fixing up. Original cost 1376.00 for a 3/1 in need of extensive repairs. Most repairs now done but still ongoing. Estimated retail value 125K but will have costed about 50k total to get it that way. Not using HML or PML to do this has taken me 3 years, let me say 4 because it wont be completely done until the end of the year. But then I can recoop my funds for other such ventures IF the economy holds for sales. Or just hold this for rental income to provide funds for those future deals.
I am doing it on my own at a level that I can handle so my debt can not possible overwhelm me.
But the same thing should be able to apply to any foreclosure sale by knowing the principles involved and developing a repore with them.
Of course, the way you fund it is up to you and your abilities. I can not go that route as of yet.
I looked at the history of about 15 properties purchased by two investors. Actually, a look at the title report reveals a few of them appear to be short sales. However, I don't know how you can manage a short sale without putting the house on the open market without a little fraud involved. On my short sales the negotiator always ask how long the property was listed and how many offers I got, etc.
The bulk of the purchases appear to be at trustee sale at the courthouse. Evidentially the banks are accepting less than the bid amount, paid in cash on the spot. Most of the investors are turning them fast without much improvement to the property. In most cases at the court house and those that were acquired through short sale, the properties are going for about 50% of the amount on the first lien and of course the second is wiped out. In all cases, the banks would have gotten much more money than these investors are paying if sold through broker as an REO.
Since I don't have that kind of cash, I wonder if I could strike a deal with one of these guys to buy the house at the auction and hold it for me for 30 days while I get a loan. I would pay them a substantial holding fee for 30 days. I mean, if you can get a house for 50% off, even if the holding fee is 10% it's a good deal for a buy & hold strategy.
shari, something does not seem correct, as you suspect. Fraud? I do not know. But from what I have seen for trustee sales the highest bidder wins that and must somehow pay that amount to the trustee. If the trustee is somehow accepting less than the bid something is wrong. Execpt when the highest bidder can not come up with the required amount, it then falls to the next highest bidder and the highest bidder can be charged accordingly!
But I definately would talk to the trustee and find out if what you suggest can be arranged. Some of those sales require XXX amount upfront and the remainder within XXX days.
There are those here who have spoken of "pre-foreclosure" and another term which I think was "pre-bid" (not sure of that) where there is less competition in the bidding process. I hope they will chime in for you!!!
Just guessing here, but since you list the lien amounts you may not understaqnd the bidding process.
The bidding process has nothing to due with what is owed on a property. That amount is not the opening bid. That is the amount that the trustee wishes to get for their "client". The opening bid could be as low as $1.00. and go up from there. This is up to the investors.
The trustee conducting the auction may suggest an opening bid of 50K and if no one is willing to bid that amount he may drop that to 40K or 30K until he can get the bidding going.
After the bidding has started it just goes up and up until no one is willing to bid any higher. It is then up to the seller(trustee) to accept or reject the winning (highest) bid. They will reject any winning bid that their client feels is too low. This is often called a reserve price on many of the bidding sites. Which only means that the seller reserves the right to keep the property himself if no one is willing to meet the price that he wants.
It is then considered as him buying the property himself and this is how a property actually becomes owned by a bank (REO) because the bank thinks they can sell it on the open market for more than what the auction was willing to pay for it.
Come on everyone, I know that I am not the most knowledgeable on this subject to help Shari out here. I can only tell her what I understand, which may not be totally correct. Please correct any of my incorrect statements and help Shari out even further than I can.
Hi Jim,
I've attended courthouse auctions in the past but not within the last year. I thought opening bids typically were the amount of the first loan and 95 out of 100 houses went back to the bank because nobody bid. All the investors I saw were there to bid on the handful of houses that had equity.
BUT, I noticed that some upcoming sales in the next week have an opening bid of "0." Does this mean they have not set the bid yet? If so, when does that ususally happen and how do you find out? (I've been looking at http://www.fidelityasap.com for information.)
I believe the "auctioneer" will attempt to get the full amount owed to be bid by the investors as the opening bid, but this by no means is what will happen, especially if the defaulted loan is "upside down".
A lot of times the lienholder will make the first bid which is to represent the amount that he will not take less than. So an investor would then have to bid more than that amount to get the property. Some auctions are referred to as an "absolute" auction meaning that the property will be sold at whatever price they can get for it and they often to start at 0 but do go up rapidly as the investors are quaranteed that whatever they bid will be accepted absolutely, even if it is $1.
Each auction is a little bit different depending on who is conducting the auction as they control the rules subject to any clauses in the defaulted lien.
As I said before, I have not attended any of these type auctions but am responding to what I have seen in these "trust deed" clauses and "mortgage" clauses.
I have and do attend tax sale auctions. And that is exactly what the county does. The opening bid by the county is the amount of the taxes, interest, fees, and court costs. If you want it you must bid higher or the county buys the property and may then at a later date conduct a special sale where they will consider lower bids.
Hi Jim,
Thank you for your responses. It really is hard to believe that nobody else on this board has any experience with this...man, there are some investors in southern California raking in the bucks! I sure would like to figure it out rather than wait for properties to become REOs. Oh well...
I hope that the information that I have given you proves accurate in your situation. I too am suprised that others have not piped in here. I know they are here, but they must not want to give away their secrects at this time or they feel there is nothing to add to what I have said.
I would note who are the ones doing the actual selling (which recieve no opening bids) and talk to those main players instead of talking to those that you have made not of that are purchasing the properties. I am sure that those who are doing the selling will appreciate more than one avenue of compection for their properties. This may take some time but should be well worth it as you have noticed. And they just might be willing to tell others who are doing the selling that you may be interested in their properties so be sure to tell them to refer others to you as well. This is "marketing yourself". But you must be sure to be ready to move on things or you will get the reputation of someone who can not complete what you start.
Shari, Are you sure that these properties are being sold for a price or are there Quit claim deeds recorded with the county deeding from one entity to another.
The reason I ask, as a servicer, we will handle the fcl in our name, then our investor (Deutsche Bank) will want us to deed it over to one of their holding LLCs before liquidation.
The property that you mention above that was purchased by an individual is the only kicker. I think the buyer probably had a negotiation going with the loss mitigation dept. to purchase this home before fcl, the home went to sale, and the buyer's offer still went through.
A property I'm interested is going to auction tomorrow. The opening bid is higher than an investor will want. Can I give an offer at the auction to some representative? What do you mean "right after the auction?"
Also, not clear what you mean in your last paragraph about deeding back.
I will make another guess here that Paul can correct, if he will. Right after the auction means that the offer the homeowner put forth is accepted by the bank AS LONG AS there is no higher bid recieved at the auction.
If any such deal is in place with the homeowner then your bid would have to be a formal bid at the auction. And it would have to be higher than the homeowners (pre-bid, so to speak) in order for it to take presidence over it.
These kind of deals are kind of like a sealed bid auction, where you do not know what to bid, you just bid your amount and hope it is accetped.
Jim--My past experience at these auctions is that there are about 50 investors whispering into cell phones and some onlookers. Since most properties revert back to the bank, they can work through 100 properties in 10 minutes. Everyone is there for the same handful of properties to bid on and it happens fast. My question is, WHO should I talk to at that point when they quickly skim over the property I want and it goes back to the beneficiary? Do I shove a written offer to someone and hope they relay it to the beneficiary?
Paul,
These are not LLCs associated with the banks. I actually know one of the investors and got him a buyer on one property within hours of his buying it at an auction. I knew the first trust deed on t he property was double the amount he paid so that was what has been throwing me off as to how this works.
I would note who it is that is attempting to sell the property and give him the note.
You would have to talk to him after the end of all the auctions have taken place. And say something like "I could not make anything happen for the opening bid, but here is an offer I would like you to take to the actual seller for me. If they think anything can be done my contact information is included, thank you for your time."
Short, sweet and to the point, should be respected. I might even add "If you would like to meet for lunch sometime, just call me"
Paul,
These are not LLCs associated with the banks. I actually know one of the investors and got him a buyer on one property within hours of his buying it at an auction. I knew the first trust deed on t he property was double the amount he paid so that was what has been throwing me off as to how this works.
I don't understand why you wouldn't just ask this investor how he did it?
Its not Fraud what is happening is that... They know someone on the inside of the bank or (banks) and that person is helping them get properties that are ready to be sold before they go to the listing agent (the person on the inside is probably makeing a profit too). I know this process very well =). Its more involved then what i've listed but thats the overall concept. If you wanna talk more about this email me at: [EMAIL REMOVED]