Buying HUD REO properties is slightly different than the process of purchasing a new or previously owned home from a builder or private party. In this article I will tell you how:
Real Estate Owned (REO) are properties that have been seized from a borrower by a lender due to a defaulted debt. Buying them involves a different process from buying a home from other sellers. They are very different from negotiating the purchase of a other distressed assets classes. Because a lender is now the owner you have fewer people that you will need to negotiate with by at least one. Fewer decision makers can mean that it is easier for you. Most loans today are sold to investors after being created. They are then placed into groups to be used as assets secured in the sale of asset backed bonds. When the party that owes the loan enters into the process of default and forfeits ownership they are no longer able to speak directly with the lender. They are usually negotiating with a loan servicer or a special consultant known as an asset manager. These are guns for hire who are given guidelines to follow and are told to collect the debt. They are not interested in modifying the borrowers loan.
Once the lender has taken over the property through a trustee they special consultants who hire brokers, other professionals and contractors to value, sell the property, manage it, make repairs and do maintenance, if any. Very often, the prior owners leave the property partially vandalized or uncleaned to show their unhappiness toward the lender’s action.
But who exactly is the lender? We can rightfully feel sorry for the families losing their homes. Maybe we don’t feel sorry for the lenders who have lost their businesses but it very often true that the originating lender and the first lender that purchased the loan have gone out of business or are in receivership themselves. Most often, the loan remains placed in an asset pool managed at the highest level by a trustee in a bank trust department for the benefit of bondholders. The trustee is responsible for hiring loan pool servicers who hire the rest of the actors in the play.
The trustees are legally bound to carry out the provisions contained in what is called the bond indenture. This is the legal document written by bond counsel for the issuer of the mortgage backed bonds. The home buyer seeking to purchase home foreclosures must ultimately satisfy the legal requirements of this indenture or contract and the efforts of the trustee to serve the bondholders. The overwhelming majority of bank foreclosure buyers are unaware of this critical fact. This explains why very often the negotiator for whoever actually owns title from the foreclosure sale is never revealed or will speak directly to agents for buyers.
The savvy seeker of homes in foreclosure will simply take this into account and not be phased by what happens next in the home buying process. Knowing the motivations of the parties on the other side of the table is the salve that will save you countless frustrations and hurt feelings. Asset managers, listing agents, loan servicers and specialized negotiators will give you what you want, the right home at the right price in the least amount of time with the least amount of hassle in you learn to understand what they really need. It is not their money and they do not take offers and objections personally. They are doing a job under heavy supervision and with strict guidelines.
Here are the thirteen critical steps that any buyer must complete in order to achieve the three objectives stated at the beginning of this article:
Don’t forget. Selecting the best buyer’s broker is the critical step in learning how to buy foreclosures the right way and to build the team of professionals to help you do it. Refer back to this article as checklist to speak with brokers who can offer to help you.
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Jim Freeman, Managing Broker at Coldwell Banker Park Shore has been named as a local listing broker in western Washington State for BLB Resources, an asset management contractor for the Department of Housing and Urban Development (H.U.D.). Watch Featured Properties for updates to homes in Kitsap, Mason, Jefferson, Clallam, Grays Harbor, Pierce, King and Thurston Counties.
For more information about H.U.D. Homes generally please visit HUDPEMCO.com.