Foreclosure Sale

Needless to say, this property went to the foreclosure sale. The lender made the credit bid of $93,567.23. No one else bid.The trustee awarded the lender a trustees deed. The lender now owned the property.

The next day we called our contact person at the lender. We asked what the REO department was going to sell the property for. He told us it was going to list the property with a real estate broker for $85,000. He also told us that the price was negotiable!

The price had dropped over $8,000 in one day. So much for getting a good deal at the foreclosure sale! But we already told you that there are deals to be had once a property goes from the foreclosure sale unsold back to the lender as an REO.

REO Offer

This property had now become a saga for us. We had found it in the pre-foreclosure phase. We had tried to put together a deal with the owners. We were successful in getting the owners to work with us for zero net dollars to them. They had no equity in the property. They just wanted our help in walking away from the property.

Our deal with the owners was contingent on working something out with the lender. We were going to flip the property to another real estate investor. We were trying to negotiate the lender down on its loan payoff so there would be some room for us to make a profit. When the lender wouldnt come off the $93,000 payoff,we couldnt make a deal in the pre-foreclosure phase.

We now made an offer of $70,000 all cash for the property. We didnt want to buy the property for $70,000. We wanted to control the property for $70,000. We were not interested in coming up with $70,000 cash. We would leave that to the investor to whom we assigned our contract.

We submitted our offer through our contact person in the REO department. Our offering price wasnt a big bone of contention. The lender simply countered at $80,000. We countered their counteroffer with $73,900, and they accepted.

Our Offer

Lender List Price Our Offer

Lender Counteroffer Our Counteroffer

$85,000 $70,000 $80,000 $73,900

However, the lender was unwilling to allow us to assign our contract. We felt we would be able to work out an acceptable price to another investor. If we couldnt get the lender to allow us to assign our contract, then we would have no deal.

The Unassignable Contract It has been our experience that there is no such thing as an unassignable contract. But the toughest contracts to assign are the ones from lenders after they have foreclosed on a loan and are reselling a property.

REO properties are the source of some of our most profitable inventory. However, lenders are just as hoodwinked as the rest of us when it comes to listening to attorneys. They allow their attorneys to put the dumbest things in their REO contracts. Remember, our position on any contract is that the purpose of the contract is to communicate.

Real estate attorneys, just like other attorneys, make money by keeping people from communicating. The following is actual verbiage taken from the lenders REO contract that their attorneys included.

Buyer shall neither assign its rights nor delegate its obligations hereunder without obtaining Sellers prior written consent, which may be withheld in Sellers sole discretion. In no event shall an assignment relieve Buyer from its obligations under this Contract. Any other purported or attempted assignment or delegation without obtaining Sellers prior written consent shall be void and of no effect.

Needless to say, this paragraph was unacceptable to us. How did we get around this affront to our investor sensibilities? Did we get the lenders prior written consent before we wrote an offer? No, we did not. Our contact person gave us a clue.

REO REAL ESTATE CONTRACT

We wrote the offer as trustees of a trust. As such, we were speaking the language the lender could understand. We did not know when we wrote the offer which trust was actually going to buy the property. The lender accepted our offer as Chantal Carey or Bill Carey, trustees and/or assigns. We assigned the lenders unassignable contract within seven days after our offer was accepted for $79,900.

While this was a lot of work for the relatively small amount of money we made, we were happy. We had tried so hard to make this deal work at each of the four phases of the foreclosure process. To finally have something work in the last phase was very gratifying for us.

We must say that dealing with REO lenders and their attorneys is very difficult. You must legitimately be a trustee before you can write and present contracts as one. We do not recommend this technique if you are just starting out in the foreclosure business.

For those of you who are more advanced or are trustees of trusts and want to consult with us for more information, contact us through our e-mail address, thetrustee@hotmail.com. You must fully identify yourself, or we will not open the e-mail or respond to it.

In the next chapter we will talk about the paperwork, escrow, and title insurance involved in the foreclosure arena. We admonish people to never buy real estate without checking the property title. This can be especially important when you are buying foreclosures. There are exceptions to our rule.

We do know of an investor, for example, who bids on properties on the courthouse steps and does no preliminary research on either the condition of the title or the property. After he wins a bid, he goes inside the courthouse and checks the condition of the title. At the same time he has a partner do a drive-by inspection of the property.

He takes advantage of the two-hour window the foreclosing trustee allows for the winning bidder to produce the cash or cashiers checks. If the property looks like a bomb, he backs out of the deal. If he discovers problems too great for him to handle with the title to the property, he backs out of the deal.

Our Profit

Sales Price Purchase Price Our Profit

$79,900 $73,900 $ 6,000