Is there any deals to be made on pre foreclosure with no equity?

[Joey Chrisman]

I have seen a decent amount of flipper houses go into pre foreclosure lately in Phoenix that were purchased at the top of the market.  These houses loan balances are too high to make any money on a flip buying it for the loan balance owed.  In 2010 these houses would just go to the auction block to be liquidated in no reserve auctions as the banks didn't care what price the assets sold for then.  I doubt the lenders will do that this time and they will more than likely open the bid for the balance owed and there will likely be no bids and they will take the house back.  So I'm guessing the best strategy may be to just wait for the lender to take the property back and then contact the lenders to see if they are motivated to get it off their books?  The only other strategy I could see would be a short sale but I don't really see the benefit of the short sale to the lender as I doubt the foreclosure process costs that much in scheme of things and the trustee would have to sign off on the deal as well in addition to the lender.  Am I missing something here?   

[Doug Smith]

When I first left banking in 2007 right before the crash and we created this company, it was to do 2 things: 1) Make commercial bridge loans to businesses that would not be getting refinanced after the crash and 2) to buy the bad real estate-backed loans out of banks. We started only doing that with commercial loans. We would buy the loan and become "the bank", then go to the borrower/guarantors and say "hey, you're upside down on the loan and you're 12 months past due. Sign the property over to us and we'll waive that deficiency balance for you." We built a good business on that and eventually branched out into more conventional lending and investor lending, but it's how we started. Here's what people don't understand though...if you go to the bank and say "I want to buy the loan on 123 Main Street, they are going to want the payoff", but if you go to them and say "what loans would you be willing to give rid of?' they'll be more likely to sell them at a discount off of the market value of the collateral. This has become what we now know to be the NPL space. If you are flexible about the properties and locations you're willing to buy, then there might be some opportunity for you there. That's how we started.