Finding REO's. Who's legit, who's not?

[Adam Wells]

Hi All. A little background. I am a buy and hold investor. I did buy a single fam, fixed it up, and sold it for a profit. Then I bought my first rental property off MLS; a 3 fam in Dorchester. I have recently learned better ways to buy rentals than the MLS; REO's is one of them. I have been researching and looking for REO's online and haven't had much luck. I'm having trouble finding a list on a banks website (especially small banks). I see many websites that offer lists if I pay for them or pay to be a member of the website. I'm wondering if anyone spends money on REO lists and which websites are legit and which ones are not worth the money. Distressedpro.com is one that keeps coming up online. Any feedback is much appreciated.

[Sean OToole]

@Adam Wells it breaks down like this:

1. Delinquencies - when someone first stops making their payments it is reported to the credit bureau. Surprisingly credit bureaus actually sell these lists to specific companies for marketing purposes, like credit repair agencies. You can probably find someone willing to sell the list to you, but be careful as there are strict laws around using credit data for marketing purposes. If you follow those laws you'll have a terrible response rate, so I don't recommend this.

2. Preforeclosures - depending on whether the state uses judicial or non-judicial foreclosures, these are based either on the filing of a lis-pendens or a notice of default respectively. Since these are public notices you can market to them. Do keep in mind that many states have "equity stripping" laws that place a lot of requirements, and potential liability, on you when purchasing these properties. Be sure to research those and know what's expected before you try doing a deal. You can get these documents yourself at the county recorder, use a local or regional service (we are one of these, for now), or a national provider (Listsource or RealtyTrac are the only two I'd consider).

3. Auctions - again depending on the state these occur after the filing of either a notice of trustee sale (non-judicial) or notice of sheriff sale (judicial).  You can try to last minute deals with these before the auction (requires considerable expertise), or you can show up and bid at the auction. If you want to track the auctions you really want to find a local or regional provider that actually tracks the sales, postponements, opening bids, etc. There used to be a good one in MA, but it appears they went out of business as I can't find them. As such you may have to do the tracking yourself, though you can get the notices from a national provider.

4. REOs - these are properties that no one bid on at the auction and have gone back to the bank. There are actually 2 very different ways to track these. One is based on auction results gathered at the time of the auction. If you are either at the auction, or use a service that tracks the auction (like we do), then you will  know about new REO's the same day they occur - AND you will also know which properties went to the bank vs. a successful bidder (typically called a 3rd party). The other is to provide a list based on trustees or sherrifs deeds. This is what the national provider do, but those deeds typically aren't recorded for a 2-3 weeks, and then it takes some time to get them added to the lists, so these typically are 3-6 weeks later than watching the auctions. The national providers "REO" lists also include both the REO's and the ones sold to 3rd Parties, with no differentiation between the two. Be an auction buyer myself for quite a few years, I used to get a lot of mail from wholesalers asking if they could buy my "bank owned" property - definitely a sign of someone who had no idea what they were doing.

Even if you know about the REO, most banks won't sell it to you directly without listing it for sale with an REO Broker. As such, it is certainly a legitimate strategy to just wait for these to appear on the MLS. That said, you may find some success with following them directly as described above with smaller S&L's and local banks, as well as sellers who financed and had to foreclose. They may be motivated to sell if you reach out directly. Additionally stale REO's which became bank owned a year or more ago and haven't been resold can also be interesting.

A note on timing - many people think it is really important to be the first one to knock on the door, and therefore use delinquency data illegally, or spend a lot of effort on getting notices of default the day they are recorded. From my experience, homeowners are still in denial in the very early days, and tend to think they can fix it. Or they know that thanks to regulators foreclosure now take forever, and that they are going to get to stay in their homes for 1-2 years without making a payment. As such they AREN'T MOTIVATED. The guys who have done best on buying foreclosures directly (not auction buyers), are the ones who have found a niche towards the end of the process. For example, watch for sales that are being postponed for bankruptcy and then watch PACER for a motion to allow the sale - at that point the homeowner is out of options and reality has hit home.

Hope that helps.