Jacksonville, FL · Member since 2018 · 57 posts · 8 votes
Hows it going BP,
While driving through an area of town where I would like to invest (Diving for $$) I came across a ton of properties in really REALLY nice neighborhoods that seemed to be abandon. You know the typical signs to look for over grown grass, tons of newspapers sitting in the driveway, weeds growing over windows, just signs that scream my owners don't care about me, one house even had a few meteor sized holes in the roof. I took note of these properties and spoke with a few home owners about the houses and many say that the houses has been vacant for years..
I do my research and find out that most of the homes have been foreclosed on and the bank on county records are listed as the owner. The bank as been listed as the owner for a couple of years now on some while others where listed as the owner within the last six months to a year but not listed for sale.
My question is can it be possible to purchase these properties although they are not listed for sale and how would someone go about doing that? Is there any typical reasons why the bank as not listed them for sale?
I don't know whether this is typical, but my experience is based on several years buying foreclosures, and my wife as a VP for a finance company with non performing loans, many of which were real estate.
First, for the foreclosures I looked at, most if not all were at public auctions. The question is, how long has it been under bank ownership, and why sometimes it takes a few years for it comes to market. I'm told, most of these homes are under water, but usually the bank try to sell at around or near the mortgage. Then they gradually lower the price. When that fails, they sell it at public auction. Even here, they sometimes demand a minimum bid, but sell some or most to the lowest bidder. I bought my home at $100K below the mortgage owed, and it was an REO for 3 years.
To understand why banks are so cautious, I learn from my wife it's an anti fraud thing. The finance company she worked for was somewhat new at it, didn't have the safeguards in place and allowed managers in charge of these REO's to set prices and sell them, apparently believing the dire stories of investors resulting in low offers that were accepted. Later on, it was learned that some of the managers, and officers who accepted the low ball offers were actually taking cash payoffs to do it. So it's like, "for $10,000 cash can you sell the $100,000 property to me for $50,000?"
I did have some experience in debt negotiations. I worked at a large company closing a division that had sizable receivable on the books, and the company gave me full authority to settle it. Somehow, the fact that I have full authority was leaked to customers. When I went into debt negotiation meetings, some customers had envelopes of cash ready saying "Can you settle this $100K debt for $50K, and there's $10K for you". If I say no, the reply is "not enough, how much more?"
So I think that explains why banks are so cautious. That is not to say they never do it. I bought my present home at a foreclosure auction, but my next door neighbor bought his after calling around some REO departments, where most of the banks turned him down. He bought his a year before me, but I got a better deal. You can try that.
Just to mention in my wife's case, several officers were caught, and convicted, and jailed. In my case, I refused the cash payoffs and some people who knew what's going on thought I was stupid. But I was only 28 years old at the time, it was 40 years ago, and how would a kid with a $30K salary explain several hundred thousand in cash laying around. I was smart enough to know I can't put the money in the bank and know somewhere along the line, someone would squeal, or try to blackmail me, and I'll be caught.
I don't know whether this is typical, but my experience is based on several years buying foreclosures, and my wife as a VP for a finance company with non performing loans, many of which were real estate.
First, for the foreclosures I looked at, most if not all were at public auctions. The question is, how long has it been under bank ownership, and why sometimes it takes a few years for it comes to market. I'm told, most of these homes are under water, but usually the bank try to sell at around or near the mortgage. Then they gradually lower the price. When that fails, they sell it at public auction. Even here, they sometimes demand a minimum bid, but sell some or most to the lowest bidder. I bought my home at $100K below the mortgage owed, and it was an REO for 3 years.
To understand why banks are so cautious, I learn from my wife it's an anti fraud thing. The finance company she worked for was somewhat new at it, didn't have the safeguards in place and allowed managers in charge of these REO's to set prices and sell them, apparently believing the dire stories of investors resulting in low offers that were accepted. Later on, it was learned that some of the managers, and officers who accepted the low ball offers were actually taking cash payoffs to do it. So it's like, "for $10,000 cash can you sell the $100,000 property to me for $50,000?"
I did have some experience in debt negotiations. I worked at a large company closing a division that had sizable receivable on the books, and the company gave me full authority to settle it. Somehow, the fact that I have full authority was leaked to customers. When I went into debt negotiation meetings, some customers had envelopes of cash ready saying "Can you settle this $100K debt for $50K, and there's $10K for you". If I say no, the reply is "not enough, how much more?"
So I think that explains why banks are so cautious. That is not to say they never do it. I bought my present home at a foreclosure auction, but my next door neighbor bought his after calling around some REO departments, where most of the banks turned him down. He bought his a year before me, but I got a better deal. You can try that.
Just to mention in my wife's case, several officers were caught, and convicted, and jailed. In my case, I refused the cash payoffs and some people who knew what's going on thought I was stupid. But I was only 28 years old at the time, it was 40 years ago, and how would a kid with a $30K salary explain several hundred thousand in cash laying around. I was smart enough to know I can't put the money in the bank and know somewhere along the line, someone would squeal, or try to blackmail me, and I'll be caught.
Juan,
As someone who is interested in finding REO opportunities in a different part of the country, I’m curious as to what you’ve learned about the process since posting this discussion. My first thought is to try to contact the banks directly and ask about their REO portfolio, but I’m not sure how efficient or effective that strategy is. Hopefully you’ve found some good news!
And, Frank, your post was very informative. Appreciate the detailed comment!
Best,
Sean
You are wasting your time trying to buy off market bank owned properties. It doesn't happen. Yeah, I know, we all know someone that did, or know someone that knows someone that does. Outside of the one in a million outlier, it doesn't happen.
My approach to this since the post has been to contact the bank directly via phone and ask to speak with someone about their REO portfolio. Some directed me to a bank website where the homes were offered for sale.
Some banks informed me that they wait until they have a certain number of properties in a given area with clear deeds and release them all at once during a certain time of year.
What I found was most common is that banks are waiting to ensure a clean deed before they list them for sale.
This is commonly referred to as “urinating into the breeze”. The banks will either place them on the mls and/or place them in the major online auction sites. You won’t be buying them one off directly from the bank.
@Juan S. I agree with the other posters, chances of you contacting the decision maker for that particular property are extremely low. Banks and hedge funds have their processes and you just have to wait until they get around to getting that property renovated and listed. By that time, you'll be competing with all the other buyers out there in your market..
Typically, once the bank forecloses, the loan file becomes an REO file and it gets handed off to an asset management company. The asset management company has their list of tasks including making sure title is clear, getting utilities turned on, assigning to an REO agent, doing renovations, etc. All this takes a lot of time and the tasks are passed on to one person after another who is just doing their job. No one cares for an asset like an owner does and none of these people care that much about the particular property you're interested in.
Monitor this property. You never know, you might be able to get a deal once it's listed. It happens :)