10 REASONS FORECLOSURES ARE TOXIC

[Annette Hibbler]

10 REASONS FORECLOSURES ARE TOXIC

The following observations are based on my own personal experiences with foreclosures over the last three years.  They are my own opinion, thoughts and conclusions and is meant as "food for thought".  These are the many reasons why I now tend to avoid foreclosures more often than not.

1. 1. Competition. It's the most popular place that newbie investors and not so new investors will go to. The key to any investment is to secure property at a discount. Many investors would rather avoid tracking down a property owner and calling him/her. What's easier to find than a bank REO property?
2. 2. No guarantee the bank receives your bid. Because you have to go through a RE agent in order to place a formal bid on a foreclosure, you’re reliant on the RE agent’s sense of morality, honesty and work ethic. Most RE agents shy away from foreclosures because it’s too much work for too little commissions. Here’s another thought, how do you know that the listing agent is really submitting your bids and not their own? They have direct contact to with the bank. You just don’t know if the bank ever received your bid.
3. 3. Too easy to overpay.  More often than not, your bidding against a lot of other investors or the listing agent. The listing agent could get you to raise your bid higher and higher, thereby, shrinking your profit margin. The listing agent is motivated to raise your offer and look like a rock star to the bank (and their broker) so the bank will send them more listings. It’s not unheard of for listing agents to submit a bid in order to get you into a “multiple offer” situation and encourage you to raise your offer at least once or twice. I’m not saying this happens frequently, quite frankly I don’t know if it does. I am just pointing out that the motive and opportunity does exist.
4. 4. Long cumbersome closings!  More often than not, when it comes to banks, the right hand has no clue what the left hand is doing. By the time they wade through the mountain of paperwork they’ve accumulated your looking at six months to nine months.
5. 5. Too much red tape and too many hoops to jump through. 
6. 6. Banks Sometimes Try to Back Out. This has happened to me twice.  If the bank takes a second look at your deal and determines that actually you’re getting too good a deal, they will try repeatedly to cancel the closing using as many excuses as possible.
7. 7. Not all lenders are in the USA. This just complicates matter ten times over because they are unfamiliar with your states particular closing practices. Even when banks are located in California, as is often the case, they don’t take the time to investigate the closing process in say, New Jersey or New York. Things that should have been done are neglected because they assume all states have the same procedures.
8. 8. Deed Restrictions. Foreclosed properties often come with deed restrictions that will prevent an investor from flipping the property quickly. On the east coast, deed restrictions usually restrict buyers for a period of three months.
9. 9. Off shore title agencies. Many banks use off-shore title companies that haven’t a clue what their doing and do not speak english fluently. Information often gets misdirected or lost and these title agencies are completely unfamiliar with the closing process of your particular state.
10. 10.  "Don't Bother Me!"  Agents assigned by the bank are often uncooperative because their commissions are a fraction of what they would normally demand from a seller. They tend to be very “mouthy” and slow to respond.  In one instance, it took me nearly three weeks to get the bank assigned agent to let me into the property.

[Jon Holdman]

NOD = notice of demand. Called NED (notice of election and demand) here. "Lis pendens" is the equivalent in some states. In any case, this is the notice from the lender to the borrower that they are starting the official foreclosure process. A very common target for direct mail or door knocking. They may or may not be motivated sellers. Many are in denial. Many would require a short sale and that requires a lot of cooperation from the borrower. But the biggest issue is competition. Everybody and their brother target these folks with mailings. If you want to go after these, figure out some way to make your mailing stand out. Or go knock on their doors.

1. 1. Competition.

There's always competition for good deals listed on the MLS. REOs (which is really what this thread is about) are no different.

1. 2. No guarantee the bank receives your bid.

Again, no different than any other MLS listed property. I do not believe there is any big conspiracy on the part of listing agents to withhold offers.

1. 3. Too easy to overpay.

Yep, just like any other property.  Especially turnkey rentals.

1. 4. Long cumbersome closings!

Indeed a real issue. REO closings rarely happen on time.

1. 5. Too much red tape and too many hoops to jump through.

No more so than any other MLS property.

1. 6. Banks Sometimes Try to Back Out. 

Could happen, but more likely they back out because there are title issues.  A buddy of mine looked at one house that looked like a good deal.  Turned out the bank had missed a first mortgage during the foreclosure process.  Don't know how, since he and I found it in five minutes in the public record.

1. 7. Not all lenders are in the USA. 

Many mortgage investors are outside the US.  These mortgages were packaged, sliced, and diced and sold to investors all over the word.

1. 8. Deed Restrictions. 

Yep.  Banks (and other sellers, too) don't like it when someone else makes a profit on their deal.  Rightfully so, since they've taken a loss on the deal.  You would feel the same way if you were the one taking a loss.

1. 9. Off shore title agencies.

Never encountered this.  Marginally competent title companies, yep.

1. 10. "Don't Bother Me!" 

If you're dealing directly with the listing agent you better be buying a lot of properties with cash.  Otherwise, use a buyer's agent.

Seems like really a rant about the difficulty in buying REO properties. I agree with most of these. Better to say "10 reasons REOs are a pain to buy" with a subtitle of "but if you can navigate the hurdles you can get a good deal."