Hard Money Lenders and REO Investing

Today we want to talk about how to approach  REO properties when using private hard money lenders.  Properties owned by banks are called REO and are also owned by  , government agencies, or other mortgage or financial institution. Each REO usually has an assigned REO Agent which is assigned to handle all offers made by interested parties.
The REO Agent is really just a regular real estate agency or real estate agent who works with that particular bank, government agency, or other mortgage or financial institution.  

Sometimes however, the REO Agent, tries to be, should we say, more than that.   Just a friendly reminder about business etiquette  . An REO Agent should present ALL offers to the bank, government agency, or other mortgage or financial institution who the REO Agent represents.  The bank,goverment agency, or other mortgage or financial institution cannot give the REO Agent  the legal authority to decide on offers  .  

 Agents do not have such broad powers with their clients and it would be not within their licensed authority   if they try to reject, counter offer, or accept offers.  The REO Agent can work directly with their client bank as much as they want to and make as many recommendations as they want, but in the end, only
the designated official in the REO Department of the particular bank, goverment agency, or other mortgage or financial institution can actually make such a decision would be more like a power of attorney .

Recently, real estate investors have been encountering many overzealous  REO Agents who think they have been granted the power to make their client’s decisions for them by employing a variety of strategies:

Not accepting from you  an offer at your offer price.

Discouraging you  to submit an offer with your contingencies.

 Citing reasons for you not to write an offer   because your lender has asked for an inspection of the property.

Discouraging you to submit an offer because there are too many offers.

 Making it seem unlikely   you to submit an offer because the other offers are higher or better or too many.

 These acts are not with the domain   for licensed real estate agents and can lead to losing a license. Sometimes an REO Agent is trying to be helpful and their advice or recommendations are since.  It is up to you to filter the information you get and make decisions accordingly. While we try to develop relationships with REO Agents  and deal with them in a very pleasant manner, as real estate investors, we cannot allow them to walk all over us, so to speak. So don’t fall into that trap and here is how to handle it.

 Here’s how to handle it: 

YOU: Is the property under contract?

REO Agent: No it is still available.

You: No?  Well I have an offer I am forwarding to you to submit to your client for a decision, where do I send that?

REO Agent: Tell me about the offer ?

You: I prefer to put it in writing .  What is your fax number, or should I send it direct to your  client’s REO Department?

Once in the REO Agent’s hands , they have a fiduciary duty to send it on to the client. If they don’t submit it to the client they are
violating the state laws because they cannot just make a decision to reject your offer without the REO department approval .

Try not to be intimidated by the REO agent.  ï»¿  Most are very helpful and genuinely interested in seeing deals get done.  Some are not so helpful. Your private hard money lender needs to have time to inspect the property and do their end of the transaction correctly.  Don’t just plug the lender in at the last minute. ï»¿  Get the rehab hard money lender involved early on while the deal is going through.  And whatever you do, don’t just leave the lender hanging out there in the cold because you will need the lender again or permit the agent to make it difficult for the lender to do their job.  
Instead, remind the REO Agent that this is going to be a win-win for everyone, including the lender. Here’s what an REO listing agent said recently about bank clients and the asset management companies the banks hire to dispose of the REO’s on a Trulia.com forum:

They would rather go with an offer they have on the table especially in a declining market and asset mgrs. work on bonuses they get a bonus based on closed transactions in a month and make no money if the transaction doesn’t close). Despite what agents are saying here, there are no games, the banks and asset mgrs and listing agents want these assets OFF the books.

Sometimes REO Agents attempt to sell    ï»¿ to their own clients so they can collect commission on the selling side also, so one option is to get on board and ask the REO Agent if they can represent you as the buyer’s agent. This tactic is often overlooked and can solve the problem because there’s more incentive to push your offer.  The REO Agent representing the seller is prohibited from soliciting you for representation as the your buyer agent.  But if you ask that’s another matter.  If the specific REO Agent can’t do it, or  wants to make it more arms length they sometimes just have another Agent from the same brokerage handle you.  Same result, more commission for the realty agency.

Remember, the commission doesn’t come out of your pocket. It comes out of the bank’s proceeds on an REO. So, there are many ways to get a little more aggressive with your REO offers. Any REO Agent that is dodging offers is really a waste of your time to work with with.  You can get someone else from the same firm or contact the actual bank or mortgage company that owns the real
estate and ask who to send your offer to.

Also, don’t fall for the game of- -Just give me your highest and best offer.  It doesn’t have to be in writing, just tell me verbally.

Your response to this is: I submit all of my offers only in writing.  If your client wants to make a written counter offer, that is fine, but my offer will only be in writing, as it should be.

Often times, going down to the very lowest priced  properties in a region will subject you to the most abuse and be the biggest waste of your time. If you are working with a solid private hard money lender they couldn’t care less if you move up to higher priced properties as long as the LTV is right, according to their lender guidelines.

It is true, in fact, that the higher priced properties have fewer offers.  ï»¿ Going from a $15,000 property to a $45,000 property for example may increase your net profits when the property is sold by 2, or 3 times and the higher priced property may be easier to market, position and sell faster.  So, the absolute lowest price properties may not be your niche.

The Ultimate REO Source gives you the top 60 direct sources of bank owned, government owned, REO and foreclosed property.  You can search and locate property in these databases in just mere seconds, by area, property type, price range, etc. and get
full information on who to contact, to make an offer. Combined with the Private Money Lenders Source, investors have the best opportunity to obtain hard money lenders support for their deals.  Most investors are now using these type of resources to expedite the funding and closing of deals.

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