preREO - First Mortgage Secured by Vacant Property

Mark S. · 2020-07-14T04:07:39-07:00

As an investor in a couple of Jorge Newberry’s note funds, I came across one of his newer ventures: preREO. I’ve heard him speak briefly about this on a podcast or two and am signed up to attend a webinar with them later this week. The gist of it, the way I currently understand it, is they’re “partnering” with local investors who want to buy/partner on the first mortgages, go through the appointment process (through their sister company law firm) to be able to repair and rent out the property as it’s going through the foreclosure process. The play is that rather than having to wait until the foreclosure process is completed, the investor can rent out the property (and earn a return - after rehabbing it, of course) during the process. Investor pays $2K program fee and 25% of the note acquisition price (they finance the remaining 75% via a participation agreement - at 12%). Supposedly, after signing participation agreement (I haven’t seen the documents yet), you can pay it off next day and essentially just pay 100% of the first mortgage acquisition price. These are non-performing mortgages and the homes are vacant and in preforeclosure.This doesn’t fit my typical passive, turnkey investment model, but I am considering taking on a local property as a “fun” project. The problem, other than this going against my philosophy of keeping everything passive, is I don’t think I’ll be able to get into the property to walk the inside prior to purchase and have no clue what I’m getting into. Sounds like a pretty easy way to get in over my head fast, but at the same time, it seems like an opportunity to pick up a property WAY under market value and there theoretically should still be plenty of meat on the bone. Anyone familiar with this approach? Thoughts?

Mark Gallagher

Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes

6y

I am not at an attorney, but if your "tenant" stops paying, and you try to take them to court to evict them, you're not even the owner of the property. You would then have to foreclose on the same property that now has a squatter in it. Seems a little too dicey to say the least. The downside far outweighs the upside.

2 Reply

Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

6y

Sounds crazy to me.....you are rehabbing a property you don’t own, and may never own.

And.....”preREO”...just another goofy a$$ made up marketing term.

4 Reply

Ron S.

Paradise, CA · Member since 2015 · 1k+ posts · 871 votes

6y

It's just this week's "Get rich quick" scheme.

0 Reply

Barry Owens

Member since 2020 · 2 posts · 3 votes

6y

Hi Mark,

First of all, thank you for being an investor with our company and thank you for your thoughtfulness in vetting out our new venture. We appreciate the confidence you have expressed in us, both in the past and present. We would love to hear from you regarding any questions you have and address any concerns. To your point, there is some risk associated with buying a note, but that is why we are selling them at least 25% under market BPO value. Additionally, do not forget that our asking price is negotiable so please, if you see a property you like, call us and we will work with you on these participation opportunities.

As to some of the trailing comments to your thread:

Once a receiver is in place, that property is in the hands of you and the court. If a tenant would refuse to pay, you could perform an eviction just as any landlord would be able to do.

You are purchasing a note. Your investment is secured by the underlying property. preREO is a new, very creative and now proven format for local real estate investors to obtain control of a property before it goes to REO where everyone will have access to bid and drive up the price. You do run a "risk" of being outbid at REO sale and "losing" the property, but given that may happen, the "total debt" is your security as you may bid up to that amount where it makes sense, but you may also be able to cash out for a healthy profit at sale if you so choose. I can also tell you that our early buyers are back for more properties, and in some cases, significantly more properties as they have had success with their prior acquisitions, but this program, as with any other investment opportunity will not be for everyone.

As far as a "get rich quick" scheme, I assure you that preREO is not that and has never been promoted as a quick way to riches. However, we are putting great investment opportunities in front of local investors every single day. The local investors will need to know their local real estate and rental markets and depending on the infrastructure the investor has in place or is willing and able to build, that will dictate how much time and effort they would need to contribute. The infrastructure supplied by preREO including investment capital, legal support and loan servicing is also in place to make it as easy as possible for the local investor to capitalize on the real estate opportunities we are presenting.

Thank you.

3 Reply

Luke DeLaVergne

Rental Property Investor · Pleasant View, TN · Member since 2020 · 17 posts · 28 votes

5y

@Barry Owens thank you for your thoughtful reply.

I am looking closely at PreREOs on your site. What I’m confused about is the “total debt.” One property I am exploring is being offered around $14k asking price, but total debt is nearly $80k. This particular home will not likely sell as a flip for more than $50-60k. What am I missing?

If I made an accepted offer, rehabbed the property, rented it out, etc... how much am I on the hook for? $80k in my example?

Also, doesn’t the process of doing all the rehabbing and filling with a tenant make the property that much more appealing to other investors? (Hence, increasing competition for this mortgage I’ve already paid off?)

I could completely be misunderstanding the process, so thank you, in advance, for clarifying these items for me.

1 Reply

Steve Powers

Developer · Atlanta, GA · Member since 2017 · 33 posts · 27 votes

5y

I too am an AHP, AHPS funder and looked into a preREO on their site offered for $19k which they provided a $90k BPO in current AS-IS condition. However, I happen to own 2 houses already on that street of older small 2/1s including the one next door that I purchased last summer in updated condition with a good long term tenant in place for $25k!!!

Their home has been vacant for over 4 years and is uninhabitable as the city water dept cut off service due to a faulty septic system spilling sewage in both our backyards. The tiny 2/1 needs rehab and wouldn't bring $10k in today's market in its current condition. No disclosure on the sewage problems or any of the interior rehab required as all the BPO listed was a mere $3500 repair estimate for exterior cosmetic issues.

An out of state buyer would have no idea that his $90k "bargain" needing minor repairs was actually a $10k property requiring major repairs that exceed the value of the property. You MUST be intimately familiar with the property before you bid as their BPO and repair estimates are beyond nonsensical.

3 Reply

Jorge Newbery

Chicago, IL · Member since 2011 · 9 posts · 5 votes

5y

@Luke DeLaVergne Thanks for your interest in an asset on preREO. For the mortgage you are looking at, you will be buying the mortgage on which apx 80K is due for apx 14K. You then would then be due the 80K from the borrower. Utilizing the preREO strategy, a receiver (i.e. a local real estate agent or property manager who you may already have a relationship with) could be appointed to make repairs and rent out the home during the foreclosure process. To be clear, you are not paying off the 80K mortgage. Thus, when a foreclosure sale is held, you can set the bid amount up to the amount of the total debt, which would likely increase from 80K to include the legal fees, receivership costs(we suggest 5 - 10% of the rents collected), repair costs, additional accrued interest, minus rents collected. So, if you put in 20K, you could set the bid up to the amount of the 100K total debt(80K existing + 20K additional) to ensure that the property reverts to you as the lender. Throughout this process, at your direction, AHP Servicing will service the loan and Activist Legal will facilitate the receivership and completion of the foreclosure. So you will have support along the way, and we can answer any questions as they come up.

I hope that this helps. Please ask any additional questions. This is a new strategy and platform, so any question is a good one so that everyone can best understand the process. Best wishes.

1 Reply

Jorge Newbery

Chicago, IL · Member since 2011 · 9 posts · 5 votes

5y

@Steve Powers Thanks for your interest. You have highlighted the advantage that local investors such as yourself have over national buyers such as hedge funds who are the largest buyers of non-performing mortgages. A national buyer would review the BPO and maybe do some brief online research, but would not typically not know, as in your example, about the sewage issues or extent of interior rehab needed. BPOs are typically exterior only and agents usually earn $30 - 50 to complete them, so use them as a reference but not the deciding factor. Additionally, the preREO strategy of having a receiver appointed to repair and rent properties during the foreclosure process is best suited for local investors, not out-of-state investors (or hedge funds, for that matter). A local investor will be best equipped to get repairs and renovation done at fair prices, set rents at appropriate levels, and help select qualified tenants. At AHP, we sometimes see clean out estimates of $3,000 - 4,000 and know well that a local investor could probably get the work done for $500. preREO is a marketplace for non-performing mortgages as well as REOs. The sellers are mostly hedge funds selling non-performing mortgages and the buyers are ideally local investors who would be likely buyers for the REOs once the foreclosures are completed. Local investors can now get additional discounts by moving up the food chain and buying as notes and, on mortgages secured by vacant properties, utilizing the preREO strategy to generate revenue during foreclosure process. Completed foreclosures can be resold or added to rental portfolios.

That all said, the asking prices are just that, asking prices. You can offer whatever you think is appropriate and message the seller with your reasoning. Sellers generally recognize that some assets are likely mispriced, whether too high or too low, because the sellers knows less than local investors and are likely relying in large part on BPOs.

I hope that this is helpful, and appreciate your support of AHP. We welcome additional questions. Best wishes.

1 Reply

Steve Powers

Developer · Atlanta, GA · Member since 2017 · 33 posts · 27 votes

5y

@Jorge Newbery

Thanks for the reply. The property in question is 108 Persimmon, Toccoa GA that I spoke to Connie and Bill about. What I don't understand is Georgia is a non-judicial foreclosure state with the fastest and cheapest process in the country, and with no redemption rights to boot. All that is required is 4 weeks advertising in the local paper then call the sale on the courthouse steps the following month's first Tuesday. So we are talking about a 5 or 6 week process with no court supervision required.

It would take 5 to 6 weeks minimum pre-covid just to get a hearing after filing for a court appointed receiver. The foreclosure would be finished well before I could even begin to start rehab, obtain permits, get a certificate of occupancy and find a tenant. I can see your program working in states like NY or NJ where I have waited 2 to 3 years for judicial foreclosures to complete but don't see why I would want to buy a note in GA given the timeline above. What am I missing?

1 Reply

Aaron AmuchasteguiPro Member

Investor · Austin, TX · Member since 2018 · 20 posts · 10 votes

5y

@Jorge Newbery So are these just notes that had an assignment of rents recorded with them? Have prior owners agreed to occupancy transfer? Interesting stuff. Have bought notes and foreclosures, but never been able to take possession during the note phase.

0 Reply

Cynthia Bankston

Member since 2020 · 2 posts · 0 votes

5y

Hi @Aaron Amuchastegui. I sent you a private message. Please let me know if you have any questions.

0 Reply

Steve Powers

Developer · Atlanta, GA · Member since 2017 · 33 posts · 27 votes

5y

@Aaron Amuchastegui

These notes do NOT contain any assignment of rents etc. These are just standard mortgage notes, many made by CitiFinancial. That is why PreREO requires the defaulted note buyer/partner to file for a court hearing requesting a third party independent receiver to be given court approval to accept rent on behalf of the actual owner of record and divert the funds to you, the note buyer prior to taking title via a completed foreclosure.

0 Reply

Jorge Newbery

Chicago, IL · Member since 2011 · 9 posts · 5 votes

5y

@Steve Powers Thanks for the feedback. Agreed that Georgia is a very fast foreclosure state and that foreclosure would likely be completed faster than the appointment of a receiver. Thus, utilizing the preREO strategy would likely not be helpful there. However, in judicial foreclosure states such as NY, NJ, FL, IL, IN, OH, PA and the others, the preREO strategy can be very helpful. Funds are offering notes on preREO in both judicial and non-judicial states, so the local investor selects the disposition strategy, with AHP Servicing and Activist Legal available to assist.

1 Reply

Jorge Newbery

Chicago, IL · Member since 2011 · 9 posts · 5 votes

5y

@Aaron Amuchastegui Thanks for your interest. @Steve Powers is correct that these were mostly originated as owner occupied loans. Thus, most do not include an assignment of rents. Thus, the preREO strategy is to have a court appoint a receiver, which could be a real estate agent or property management company, to repair and rent the property during the foreclosure. In judicial states in which the foreclosure process often takes a year or more, this not only generates income, this also typically mitigates property deterioration, vandalism, and other costly issues which diminish the value of abandoned properties which remain vacant for extended periods. The preREO platform is a marketplace for preREOs, REOs and Notes. However, if you already own a note secured by a vacant property, AHP Servicing and Activist Legal can help you execute the preREO strategy on the note(s) you already hold and want to keep.

1 Reply

Edward Augsberger

Member since 2018 · 4 posts · 0 votes

5y

What happens if the homeowner wants to move back in the property?

0 Reply

Jorge Newbery

Chicago, IL · Member since 2011 · 9 posts · 5 votes

5y

@Edward

@Edward Augsberger The court order grants possession to the receiver. In order to move back into the home, the homeowner would need to reinstate or payoff the loan, including the costs of the receivership as permitted in the order. This would typically include legal fees, the receiver's fees and costs, and the repair costs. One word of caution: the court orders typically allow repairs to make a home habitable, i.e. rent-ready, but not cosmetic or similar non-essential repairs, like upgrades or additions. As loans are offered on preREO at a discount, a payoff or reinstatement would typically generate a good return for the preREO investor.

0 Reply

Cheree Phillips

Member since 2022 · 3 posts · 0 votes

4y

I am a current investor of a property with PreREO and my experience has been absolutely horrible! There has been zero engagement without me taking the initiative with regards to the process leading up to the foreclosure sale. PreREO made 2 unauthorized attempts to access my bank account to withdraw funds that were over and above the monthly interest payments. They send invoices without any details to substantiate their expenses. Whenever I ask for the supporting details for the expenses, my requests are either ignored or they never send the details. They are trying to force me to pay taxes and fees that occurred prior to me signing a contract with them. Lastly, I was sent an invoice for $13K for program fees??? There are no program fees outlined in the contract over and above my initial fee. I have had several discussions with them and there response is that if I'm not willing to pay they need to buy back the property. This feels like a total scam. Has anyone else had this experience with them??

0 Reply

Steve Powers

Developer · Atlanta, GA · Member since 2017 · 33 posts · 27 votes

4y

@Cheree Phillips

I'd like to learn more about your experience. What state is the property in? How much did you pay for the note and what do you feel is the current value of the property? Did you have squatters in the property and how did you remove them? What expenses have you incurred so far? Have you begun rehabbing, filed for a receiver appointment, begun to foreclose the note etc? How much profit at the end do you expect to realize and what time frame do you project to receive it? Thanks!

0 Reply

Cheree Phillips

Member since 2022 · 3 posts · 0 votes

4y

Hello Steve,

The property is in Buffalo, NY. I paid $27K for the note. Until the house goes through the foreclosure process, I am making monthly interest payments. I believe the property value is around $100K. No squatters, rehab efforts or receiver appointment has been involved. The expenses to date are for the monthly inspections, taxes, legal fees and whatever other fees AHP/PreREO decides to send me. A receiver was never appointed throughout this entire process. This is the frustrating part. Communication is very poor. The only thing that I receive are monthly invoices with fees that they cannot substantiate. I can't project a profit because the fees from AHP/PreREO are neverending....

0 Reply

Cheree Phillips

Member since 2022 · 3 posts · 0 votes

4y

Hello @Steve Powers,

The property is in Buffalo, NY. I paid $27K for the note. Until the house goes through the foreclosure process, I am making monthly interest payments. I believe the property value is around $100K. No squatters, rehab efforts or receiver appointment has been involved. The expenses to date are for the monthly inspections, taxes, legal fees and whatever other fees AHP/PreREO decides to send me. A receiver was never appointed throughout this entire process. This is the frustrating part. Communication is very poor. The only thing that I receive are monthly invoices with fees that they cannot substantiate. I can't project a profit because the fees from AHP/PreREO are neverending....

0 Reply

Steve Powers

Developer · Atlanta, GA · Member since 2017 · 33 posts · 27 votes

4y

Thanks for the reply Cheree.
Who is doing monthly inspections? Does PreREO send someone out every month and charge you?
I assume they collect a proration every month for property tax? (NY counties are generally quite expensive)
Do you have home owners insurance to cover fire or other damage? How does that work when you are not yet the legal owner of the property? Is it provided by PreREO and who is the loss payee?
What legal fees do they charge as you are now the note owner? All legal fees should fall on you to foreclose.

NY is a horrible and expensive judicial foreclosure state that takes about 2 years to get title and that is before the 2 year back log from the covid foreclosure moratorium. What is your strategy for this property over the next several years as you wait to get title?

Note purchasing is a very sophisticated strategy best suited for well funded and highly experienced investors. Just curious what your background and experience is in this field. Are you local to the property? Thanks.

0 Reply

T. Story

Flipper/Rehabber · Buffalo New York · Member since 2021 · 11 posts · 5 votes

4y

Bought a home from PreReo. My experience was all bad, first it took months to get them to come down anywhere on a reasonable number. Remind you they selling homes been vacant 5 years or more with lots of problems.

Leaking roofs, falling down foundations, mold rodents and past debris from previous tenants or owners.

The process to buy these “pre reo” is actually a long one. They list all of these properties at prices that house in the area are selling for. You may place a bid even a reasonable one and they reject it or counter it for $1000 less then their asking.

I read Some of these comments and someone said they have a law firm attached to them to help this process to obtain the actual note. Yea that’s pretty far fetched. I closed for both sides and had a chase them round for final signatures.

Also might I add the property could be falling down, you basically have to send your staff out to take pictures and videos to send to them to get them to even budge on any price.

These homes they have have been sitting a long long time and most cases they are on the city’s list of zombie homes and ready to be demolished, you won’t find that out with no title search and survey, you find that out the day your workers show up to work ready to get this thing back to livable to be met with more money spending ventures.

Bottom line. It’s a huge crock of BS. They basically trying to sell vacant abandon homes for top dollar that have huge problems, they will even send you the comps in the area. That’s funny to me they compare a home that’s taking on rain from the outside inside, basements full of water all the windows broken, everything is wet and has to be re paired. They compare that home to others selling in the area. Hilarious if you ask me.

I think anyone who’s trying to sell homes like this for the amounts they are asking lack basic skills in the real estate world. Trying to get the full what’s owed on it back. Good luck with that.

Who counters offers at $1000 less then the already asking price, they want 85k I offer 35k they counter at 84k.

Stay away way better places you could buy non performing loans at. You don’t need to deal with this place.

Average home they trying to sell sits on the market for 2 years or more. On top of it’s been sitting for 5 when they picked it up.

0 Reply

T. Story

Flipper/Rehabber · Buffalo New York · Member since 2021 · 11 posts · 5 votes

4y

Quote from @Steve Powers:

Thanks for the reply Cheree.
Who is doing monthly inspections? Does PreREO send someone out every month and charge you?
I assume they collect a proration every month for property tax? (NY counties are generally quite expensive)
Do you have home owners insurance to cover fire or other damage? How does that work when you are not yet the legal owner of the property? Is it provided by PreREO and who is the loss payee?
What legal fees do they charge as you are now the note owner? All legal fees should fall on you to foreclose.

NY is a horrible and expensive judicial foreclosure state that takes about 2 years to get title and that is before the 2 year back log from the covid foreclosure moratorium. What is your strategy for this property over the next several years as you wait to get title?

Note purchasing is a very sophisticated strategy best suited for well funded and highly experienced investors. Just curious what your background and experience is in this field. Are you local to the property? Thanks.

I’m based here in NY and my process to obtain title in my company name has not taken 2 years. It took about 8months pre Covid-19.

How does the insurance work if your not the owner, a well versed company who has experience in buying non performing loans, and you hold interest in the property everyone knows it can be insured. It’s the same kind of policy when you own a home through a trust. Just gotta find a good insurance company to work with.

Nobody is doing monthly inspections on PreReo end either lol they can’t even get the first guy they send out to take pictures to do it right.

PreReo is just a technology company for note holders. They don’t have any law firm they work with, that’s all BS they list NPL for title and note holders.

I buy and Sell a lot of homes, I have worked with all types of Business as well that do this, PREREO is nothing more then a Wholesaler, nothing special about this place. No deals to be made or even money to be made.

1 Reply

T. Story

Flipper/Rehabber · Buffalo New York · Member since 2021 · 11 posts · 5 votes

4y

Quote from @Cheree Phillips:

Hello @Steve Powers,

The property is in Buffalo, NY. I paid $27K for the note. Until the house goes through the foreclosure process, I am making monthly interest payments. I believe the property value is around $100K. No squatters, rehab efforts or receiver appointment has been involved. The expenses to date are for the monthly inspections, taxes, legal fees and whatever other fees AHP/PreREO decides to send me. A receiver was never appointed throughout this entire process. This is the frustrating part. Communication is very poor. The only thing that I receive are monthly invoices with fees that they cannot substantiate. I can't project a profit because the fees from AHP/PreREO are neverending....

It sounds to me like classic PreReo, I know exactly what your talking about once you have signed a few forms. The ticket to this is you have to stay diligent. You have to force them with everything, call follow up email every day. You should already have a Lawyer on the team who’s also doing that from his or her office as well.

If your working with this company and this company only and think that they are going to get you to the finish line to get the title in your name, well I’d say you’d have a better chance at winning the lotto.

What some don’t know is they are not a one stop shop, the more you get dragged along the more money PreReo makes, again they are basically a wholesaler, the longer it takes you to obtain it the longer you pay them. That’s how they make money.

You need a good reputable real estate lawyer to see you through this.

As I mentioned in my post, if you don’t have a proper team in place to work on deals like this depending on this company to see you through is just smoke and mirrors.

Thanks why won’t deal with them anymore. It’s not going to make you money in fact, youd be better off flipping a house in Ahmerst or Clearence or Orchard park paying full market price for it updating a kitchen and bath and then re selling it for 60k more. With less headache. You’d make the same amount of money with less work headaches.

I would get you an attorney ASAP. Seems like you got trapped into the prereo scheme.

I wish you very much luck!

0 Reply

T. Story

Flipper/Rehabber · Buffalo New York · Member since 2021 · 11 posts · 5 votes

4y

Quote from @T. Story: