Bank unable to sell REO property, what's next?

Question

I've run into an interesting situation in trying to buy an REO property and wanted feedback to see if anyone has experienced something similar, knows what happens next, or can offer any kind of guidance on how to land this deal as I ultimately would like to live in this one.  Here's the breakdown:

Property was already REO and listed on Zillow, but being auctioned on Hubzu.com.  I watched the first auction and no one bid.  I called the REO listing agent that was on the Zillow listing and he told me the only way to get the property was on Hubzu's auction and that it would likely be back up within a couple of days, which it was.  I watched the auction again (price was too high for me, but I was curious) and, again, no one bid.  A week later it's on again with the price dropped and this time I was the only bidder at their starting auction price which they did not except.

At this point I decide to try and go to the bank directly and negotiate with them as clearly no one's interested in this property except for me and I had done a good amount of research and saw that the bank on title was Deutsche Bank and I looked up and found the portfolio manager for the area where the property was located.  He said that while their bank holds title, PHH is servicing the loan and is charge.  I reach out to PHH and ask to speak to their portfolio manager and I end up with Hubzu's customer service line.  Dead end.  So I wait for the next auction.

Lo and behold this time one other person bids, but I'm the high bidder and they still don't except my offer.  Only this time, I see that the listing has been removed from the MLS and is no longer on the Hubzu auction either.  I know about all of the other stages before REO and have purchased at various pre-foreclosure points, but I thought REO was the end of the line.  I've tried reaching out to the listing agent again, but haven't heard back, but it got me wondering, what happens with an REO property when the bank has tried pretty much all avenues and still can't sell the property???  And how do I get in front of this deal again to finally give them a price they would accept?

Any thoughts or expertise on this would be greatly appreciated.  Thanks

Russell Brazil · Answer

It will end up listed again. Often times they need to attempt to sell at X price, even if X price isnt realistic, in order to satisfy the terms of a mortgage insurance claim.

James Hamling · Answer

Not knowing your exact market/state of interest I can't dive into details but it's key to have a great, not good, go-to legal advisor. It can seem really intimidating all the details, I think that's why most never get into it. That said, my best deals ever were all redemptions.

On the REO side you could look up REO on the MLS to find who the listing broker is. Odd's are you will find a common theme as to who the broker(s) are. Than call up that broker, explain your situation, see if can get insight there. Looking as owner occupant will help greatly.

What I always looked for in redemptions is who the additional lean positions were, because I got to know what banks would redeem, which was few, and which reliably did not. because that was my profit margin, that amount I was washing clean on title. We never did big crazy rehabs on redemptions, it was cosmetics, what we could do it 30 days or less. If property had some big problems, like knob & tube elec., I'd just walk away. You have to assume there is a "theme" to a property, if find some big "ugly" have to assume there is many more and it becomes quickly not worth it. Everything in good order but green shag carpet and flower wall-paper, that's my jam!

I also had to have good rapport with the occupants selling redemption rights, I followed my gut.

Ty Rob · Answer

Thanks @James Hamling I don't get caught up on deals, it's just that in this particular case I wanted to live in the home and where I am such situations don't come up often, but I'll look into redemptions.  I'm not a huge fan of sheriff's auctions either, for the reasons you've stated.  I've had good luck landing deals in the pre-foreclosure stage, but not past the trustee's sale/auction.  Any good tips for buying via redemption?  It's not an often discussed tactic.

James Hamling · Answer

I prefer to get my information on such straight from the horses mouth, as I said before I have advanced experience in the REO space, I also know a few banking Executives personally so I know first hand there is a tangled web of intricacies that can be involved and it's hard to say on any 1 property without knowing what banks are involved, and even then things can vary.

Hands down the best way to get a REO is via redemption. This gives you the maximum in clarity of information, and power position with ability to mitigate any unforseens. Next, at sheriff auction can be decent especially now that there is few who have experience in such vs say '11' when it became very crowded space. Although I have never been a fan of this because most often there is little information as for property condition, unless one broke the rules, went out before hand and "accidentally" found an open door and took a stroll through the place. I DONT advise this but it was common back int he day.

Buying from those auction sites I have had nothing but bad experiences in my circle with them.

I would say look into redemptions, again there is few in that space vs "back in the day". It's detailed but done right, well worth it. And like most strategies the 1st is the hardest, from there it get's easier each time as you start to template it out.

Don't ever get too hung-up on any 1 deal/property, it's business, gotta keep moving forward.

Ty Rob · Answer

@James Hamling True, I am making a bit of an assumption, but having watched the property for about 4 cycles of auction and being the highest bidder twice (though under their reserve amount which of course they don't show on the actual auction), I'm confident I would have actually got the property if I had met their reserve or at least opened up negotiations with them.  That's my bad and now I regret that as I would pay close to their reserve.  At any rate, seems like there are some definite mixed messages on this thread, but I guess my real question is, is there any way to overcome my mistake and still get in touch with them to start the negotiation process or does that seem like a lost cause?

Mark S. · Answer

@James Hamling Banks do not want to hold REO, or what is commonly referred to within a bank as ‘OREO’ (other real estate owned, to differentiate it from real estate they actual own as part of normal portfolio activity). It is considered a positive event every time they get one of these properties off their balance sheets.  The way they like to monetize them is to sell them, although like anyone else they want to get a fair price for the property, or at least cover what they have into it.

James Hamling · Answer

I am confused at your assumption of the situation @Ty Rob.    You use the headline "... can't sell" but clearly describe the bank has had 0 trouble selling it as you yourself have on many occasions tried to give them exactly what it appears they are asking for, and the bank simply REFUSES to sell to you.

That's NOT a "can't sell" situation, it's a "WON'T" sell situation.

Now, as someone exceptionably well versed in REO, who navigated these waters from "back-in-the-day", worked way up feeding chain to having asset managers on speed-dial and receiving tapes directly from BOA and others, please hear me clearly when I say; What you think you know is MAYBE 10% of the tip of the ice-berg that is all that is REALLY going on.

It is not as simple as you think it is. There is so many layers to it all, so many different ways a bank makes money on an REO, holding an REO, various balance-sheet games, insurance payouts etc., it's about as complex as it comes. So don't assume they "can't" sell it when actions are they "won't" sell it, they are busy with the property for now.

You know it's legitimately "For Sale" when it's on the MLS, being listed by an approved Broker who does REO liquidations for that group. If you want better insight, find out who the REO Approved Brokers are in your markets of interest, then the next work will be getting them to like you, and share insight with you, not insider info just insight to how it all REALLY works.

Banks built amazing liquidation strategies post-'08', they found so many ways to monetize an REO it would make your head spin, and yes that includes holding a vacant property on balance sheet.

Never assume anything with REO, especially the most laughable of assumptions that any banking interest "can't" sell a property, or is in any kind of "jamb" with such, no, it's a non-issue. The banks #1 priority is maximizing monetization of the REO, and that does not always translate to selling at that moment.

Ty Rob · Answer

That seems like the most likely scenario, thanks Greg.

Bank unable to sell REO property, what's next?

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