What to Look for in Bulk Bank REOs
After over a year on and off in the Bulk REO business you do learn a thing or two and what to avoid or trust. There are many things to look for in both finding the seller with product or the buyer with funds. Connecting these two can be as difficult and frustrating as anything you can do.
Let’s first talk about Sellers. When I first got started in this business and the main reason I got out of the Bank Bulk REO business is people who say they have product actually don’t have anything significant. Many of them are merely intermediaries who may have a few addresses and then are pretending or posing as Seller Representatives. Regardless of the reason that they are doing this almost never does a deal actually close. Many times the product which they are representing has already been shopped around so many times that anyone in the business has already seen the list, thus making the list useless.
Other problems are people (often Realtors) who simply take a list of homes on the MLS which are short sales or REOs and compile a list this way. Obviously, they will not shop it locally but someone in another state won’t realize the list is simply off the MLS until they start doing their due diligence.
Regardless of the reason, if you want to play this game you need to check the sources of the sellers.
Now let’s move to the buyers. There are a lot of cash buyers out there who are legitimate, but there are more false buyers out there posing as real buyers. You will need to learn how to quickly determine if a buyer is legitimate or not. Asking for bank statements is one way (this is also called a Proof of Funds) to verify they are legitimate, but many real buyers will not provide this to a middle man in fear that the middle man will use the POF and pretend they are the buyers and falsely prove themselves as buyers. I can attest that almost any buyer who has been in the business for more than a year will tell you horror stories where some intermediary was using the buyer’s information to try to secure product.
Why would an intermediary do this? Obviously, they won’t be able to close on the deal. Well, closing on the deal with the false bank information is not that important to this poser. They are actually looking for another buyer and will attempt some form of simultaneous closing. Rarely will this be effective and usually is just a waste of time and reputation.
Another false buyer is a buyer who is attempting to buy with no money of their own. They will attempt to use a transactional funding company who will provide the buyer a Proof of Funds letter. In most cases when the seller begins the verification of funds process they will find out that the buyer is using this third party and then reject the offer or order and may even blacklist the buyer from any future business.
The reason banks don’t like transactional funding, in my opinion, is that the transactional funding company will say yes to anyone who asks them to, but when push comes to shove and the closing is about to take place they will often reject the deal, regardless if the would-be buyer wants to move forward. Thus, like any loan process, the lender will decide on the deal. The banks are not in the Bulk Bank REO business for buyers to get a loan. They want cash buyers.
Here is what to look for when you are attempting to put a deal together with a buyer and a seller.
1.) Be as close to both parties as you can be. The more people involved, (i.e., a daisy chain of middlemen/women) the less likely it will close.
2.) If you are not direct to either party, ensure that your contact is direct to either party.
3.) Sellers may be an actual bank, a private seller, or a hedge fund. Make sure they can put together real product.
4.) For buyers, verify upfront that they will have to show proof of funds to the seller before any product will be released. Those funds will also be verified. If the buyer is using any type of transactional funding, you will blacklist them forever.
5.) Never ask for a Master Fee Agreement until a deal has actually started. You may get some type of Non-Compete/Circumvent & Non-Disclosure agreement (NCND) between all middle people. After the NCND is signed then put the buyer into direct contact with the Seller or Seller Rep.
6.) NEVER be greedy. There is plenty of money to go around even if it is only a fraction of a percent. The biggest issue in this game are the intermediaries. More deals have gone south due to greed or laziness of the middlemen. Let the big boys play and don’t get in the way.
7.) The best way to keep everyone legitimate is to use an attorney or a Vetting Company. This is a middleman that simply verifies that each party is real. They will get the POF from the buyer and verify the funds are there. They will also get a Letter of Authorization (to represent), also called an LOA, and verify the seller can represent this package. They will only let the other party know that each side is true. A small problem with this is when a buyer is ordering a custom package the LOA won’t exist at the onset.
If you can successfully put two legitimate parties together in this wonderful game of Bank Bulk REOs then you are well on your way to eventually become the buyer yourself.
Happy Investing!
Kevin A. Dunlap
Trident Investments Group
O: 702-516-5698
C: 702-591-1784
You may be directed by the lenders to contact these real estate brokers or agents to find out about available properties. Mutual Funds
Mutual Funds
February 13, 2010 at 8:35 am