All About REO's

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Buying foreclosed properties from banks and other lending institutions is one of my favorite sources of bargain properties. But many people try to play the bank REO game and walk away frustrated and empty handed. Once you learn how to play the game to win, bank REO's will be a never-ending source of enjoyment and profit!

For clarification, let's remember what a bank REO property represents...failure! Here is a property that the bank made a loan on where the owners (borrowers) stopped making payments. The bank then had to spend a sizeable sum of money to go through the legal hoops of a foreclosure process and eventually take ownership of the property. Along the way, the property was made available for purchase at a public auction but nobody bought it...probably because there was little if any equity...or because it was in sorry shape, or both. The bank failed in making a good loan and it failed in exposing the asset to the public at auction. Now they own it and need to sell it and get it off their "non-performing asset" books.

In this situation, banks become the classic "don't want'er" owner who is motivated to sell. They don't want it and are motivated to get rid of it...frequently at 20% to 50% below market value. The problem is, you never know when they are going change from being just motivated to sell, to "highly motivated."

Bank employees who handle the asset disposal problem on behalf of the bank, tend not to be the brightest bulbs on the tree. It it not unusual for someone in that group to decide to become a hero by turning down offers, spending large sums to money to renovate a property in hopes of selling at full retail value...only to end up loosing even more money when it is eventually sold. If you run across this situation, just smile and move on to the next property on the list...but check back on availability next month. Chances are, it's still on the market.

And that leads to the essence of successful REO investing. The key to success is repetitive offers. When (if) your initial offer is rejected by the bank, don't just forget about it like most investors do...put that property listing in a tickler file or recall list and check back on it's availability in 3-4 weeks. If it's still on the market, put in another offer at your price and see what happens. And keep doing this every 3-4 weeks until the property is sold to you or to someone else. That's how to play the REO game and win.

The point behind this strategy is that you never ever know when the brilliant minds working behind the scenes at the bank decide it's time to cut their losses and accept your offer. It could come at any time...next week, next month or 6+ months down the road. Sooner or later, they will fold their tent and accept an offer. You just hope yours is in front to them at the time.

What else is attractive about REO properties? For one thing, many of them are in rough shape when they come into the bank's inventory. People who are loosing their homes to foreclosure tend to take out their frustration on the property...kick in doors, punch holes in sheet rock, break windows and light fixtures (sometimes toilets), and otherwise show the bank how they feel. Certainly, it is a tragedy for the former homeowner. But for the investor who likes the challenge of turning lemons into lemonade, it provides a great opportunity for profit.

How do you find out about the availability of REO properties in your area? There are several ways to track them down. Since many lenders list their REO properties with local real estate agents who put them in the MLS, it's a simple matter of contacting any agent to get the list. This is not foolproof because in some areas, the listing agent does not specifically identify the property as being an REO...but many indicate REO in the comments section of the listing. Some offices, looking for REO investors, advertise a *Bank Foreclosure List.*

Another method is to call lenders directly. This gets a little cumbersome and frustrating at times, trying to connect with the right people. A little patience and persistence goes a long way in this endeavor. You might find it faster and more fruitful to just stop by a lender's office...particularly lenders that are based locally. With National lenders you may have to contact an out-of-state office to get the list. But many times, a local branch office will handle their own REO properties. In any event, the lender will provide you with a list or refer you to a local real estate broker who handles their marketing of REO's.

And finally, there are a number of online companies that specialize in providing bank and lender REO information. Some market their services with a monthly subscription fee while others have an up front fee with unlimited access. You can locate these companies via search engine using *foreclosure* as the keyword for the search.

Repetitive offers...that's the key to winning the REO game. Now get out there and scoop up your next bargain property!

By Kevin C. Myers.

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