New to investing~ want to work with REO's ~ Need advice

[adventurouslex]

I am new to investing, 23 years old,  and eager to learn.  I am going to get into rehabbing properties in Los Angeles, Ca. I need some helpful advice though. I want to work with pre foreclosures and REO's. In the case of REO's, what is the exact process? I have a real estate agent working for me, and I need to know how to contact an REO agent. Do they work for the bank, or just list properties for the bank? I can work with my real estate agent as the buyers agent, and work with an REO agent who represents the bank right?

Thanks a bunch!

[justin0419]

REOs are bank owned properties.  The banks generally get a few different agents to give them a BPO or Broker Price Opinion to determine the value of the property.  The bank then usually chooses an agent to list the property with.  A lot of these properties end up on the MLS just like houses from owners looking to sell.  In my area, the MLS has a specific block that shows whether the house is a foreclosure or not. 
Your agent can submit offers on these houses to the other agent handing the REO.  The bank can then accept, reject, or counter your offer like a normal seller.  Sometimes it can be really slow to get answers from a bank because some of them are set up to where the offer has to go thru several levels of management before there is a decision.  One possible advantage of REOs is very low closing costs.  We bought one where the only closing cost was a $12 recording fee.  Everything else was paid by the bank. 

[Rob in Atlanta]

I have had success working with both realtors and directly with the banks over the past 20 years. 

In working with the banks, you can develop relationships with someone in the REO department who will ultimately bring you nice deals.  The success that I have had comes from knowing that the bank's stockholders are in major upset with non-performing mortgages and notes.  They would prefer to have the note performing again rather than take a loss on the principal balance to get it off the books.  What I have done is offer them the full balance owed (assuming the value of the property is higher than the loan balance) in exchange for them to finance at a competitive rate on a 30 year note with a 7 year call (balloon).  I also require that they allow the note to be wrapped, which has worked well for resale.  This is a winner for all parties, which makes for a good deal.

In working with realtors, the one caution I would give is that many realtors that I have worked with do not typically have the courage to make aggressive offers to the banks.  Hold them to their duty to make any offer you desire!!  I placed an offer on an REO where a builder loan went bad and the house was nearly complete.  The bank had received numerous offers low balling the house.  I offered full value of the loan (which was at that time more than $100k below retail) if they would finance the purchase price 100% on a 30 year fixed with a 7 year call and a 'one time non qualifying loan assumption' for me.  The agent said she would not make the offer because they would be insulted and would not accept such a request!  I told her that she was required to make the offer according to her license and the R.E. Laws.  I got an acceptance the next day and the attorney for the bank called me the same week of the offer saying the paperwork is completed and I needed to come in and sign the mortgage and bring the prepays for the escrow!

Bottom line is REOs have lots of potential.  Build relationships with the banks and realtors, make 'unreasonable requests' while keeping in mind that banks do not want to have a bunch of non performing notes sitting on their shelves.  Solve their problems and you will make money.

Rob