The REO Conspiracy: What Happens When the Banks Own Everything?
“Conspiracy” is a good word to use if you want to get some attention . . . did it get you to read this post? If what’s going on with all the foreclosures, failed short sales and mismanaged REO’s isn’t a conspiracy, well then . . .
Well, I guess I really hope it IS a big conspiracy because I don’t feel happy thinking that so many high-paid, Harvard-trained market makers are so stupid. It’s more fun to think that some Reptilian alien race has taken over in a sinister plot to humble the US of A by creating a telepathic mind link to all those high-powered Wall Street types who were caught without their aluminum hats on.
OK . . . that was probably more than you wanted to know about the workings of my mind, but before you roll your eyes and click away to the next blog, let me tell you something about a market snapshot I just took.
I’ve been talking to a real estate broker over in the South Bay area who has been doing probate work for over 25 years. He’s very experienced, well-respected, and carries at least 20+ probate listings at any given time all over L.A. county. I noticed recently that he was sending out distressed email flyers to other real estate agents saying, “Freaking Bring Me a Buyer, Will You??? The probate attorney wants to get paid!”
In all seriousness, the properties that are fixers are really hard to sell at “market” because FHA won’t lend on fixers. He was begging me to submit something so he could move his process along, so I did – all cash offers on behalf of some investors that I know, but guess what? At half his listing price, or less. Why?
Case in point:
- 3 bedroom, 1 bath home, 1,080 sqft in Los Angeles 90002
- Listed currently at $224,900
- 265 Days on Market
- 4 comparable properties ACTIVE between $149,000 – $168,900
- 3 PENDING properties from $113,900 – $169,900
- 1 SOLD in the last 4 months at $160,500
- Everything else is EXPIRING unsold
When I ran a title search to see what was closing, I saw that out of 18 deed transfers, 13 were obviously trustees deeds. That means that 72% of the property transfers were from banks foreclosing and taking back property. So anyone trying to sell a house in that neighborhood was competing with REOs who really do have to sell at some point, whether on the open market, or at an auction (where they’ll get even less).
Umm, when Trustees Deeds represent almost 75% of property transfers, there’s a problem, and one that will continue to feed on itself in a negative fashion, with or without Reptilians.
So here’s where I’m saying to this probate attorney,
“Frank, (his name has been changed) you’ve got to get some of your clients to consider carrying paper on this stuff. They could use Seller Financing to get a decent price, and if we underwrite the deal properly, they can sell the note and still be better off than taking the low-ball cash offers an investor is going to make. Even taking .80 cents on the dollar on the note, they’re going to probably walk away with at least $25,000 more, bottom line.”
I think I got his attention, so we’ll see where that conversation goes. But I need to go . . . this post is already too long.
So, make a comment, will you? Or email me to explore this whole idea.