I write this article from my experience in real estate since 1998 and after having served Citi Group in the verification of occupancy, the cash for keys, the rehabbing and the pricing, advertising, marketing and selling(closing) of Citi’s asset – the Real Estate Owned property.
When I started in real estate the market was somewhat robust. Interest rates were around 10% and we were in the middle of the “dot-com” bubble. That event alone was creating a surge in real estate prices within the Los Angeles Market – we observed better than a 10% price gain in our larger metropolitan real estate markets.
It was only a year later when borrowing regulations were slackened. This made it easier to qualify for a home loan, which may not have been such a good idea. Then on the horizon was 100% financing, another not so good idea.
At the end of 2006, people said the “writing was on the wall”, there were way too many savvy people who did not see said writing. They were continuing to buy investment properties hand over fist, then the expected/unexpected happened.
A large Sub-Prime Lender, New Century Bank fell. April 2, 2007, they filed for chapter 11 bankruptcy.
Talk about panic in the streets. The phones were ringing off of the hook. I had been resigned from the LAPD since January of that same year. I was still a reserve officer, but only making $16.00 a month, that wasn’t going to do it.
I was watching the signs and it seemed we were headed for a foreclosure/REO(real estate owned) market and I wanted to be prepared.
I had been writing at that time and had some key online numbers in place within the Santa Clarita, Southern California Foreclosure placed ads.
The storm cometh…
The market dwindled. Something by the name of Short Pays/Short Sales started hitting the market. I adjusted my real estate team to start handling those assets.
In some cases, they took a long time to work out. The banks built entire departments to handle the flow of short sale properties and they, to their benefit, were pretty good at helping their mortgagor.
In other cases, not so much. Bad reps, horrible experiences by those who had verifiable hardships. Death, Divorce, and Disease topped the lists for some of the Short Sale Sellers.
Some of the short sale sellers, in all honesty, just wanted to get out. They wanted to get out from under the property so they could buy again at some point before the market fully recovered and prices started to climb.
With our help, our short sale sellers were winners and were able to buy in 3 years after we ensured the bank did a “correct type” discharge on the seller’s credit report.
It worked out and those sellers are now homeowners again.
The REO start cycle
It wasn’t long before I received a call From Dee Benetiez from Citi Group. She was awesome and after a short texting and performance timeframe, I was brought on as the latest Foreclosure Realtor who Citi was using to sell their foreclosure assets.
Most of the AM – Asset Managers did not have a lot in the way of personality, at first glance. They are on the bank’s side and while I’m working for the bank also, there was a true chain of command that needed to be honored.
Being with the LAPD I understood that and was quite good at getting along. They were all great to me and Paris as long as we played a fair game.
The games started but were fixed quickly…
For example, when submitting an offer from one of our buyers on an REO asset we had listed by Citi, they wanted to know this up front. In some cases, agents were playing games with the banks using them to sell the REO asset. They’d say that was the only offer they received and round file(trash) the other offers which were submitted. They did this in order to “double end” the deal and make more money.
The banks solved this issue quickly with a two-fold strategy. They first make it a pain in the arse to represent a buyer on a home the agent was selling for the bank, they further cut the agent’s commission to be earned as if they were only representing the bank. No extra money for the agent to represent the home buyer on their own bank-owned asset, no extra money with double the liability.
The second thing that some of the major banks did was to implement a “straw buyer” component to their safety and security branch. They had “fake buyers” call the agent with a prepared script to see if the agent was really working in the best interests of the bank.
Questions such as, “If I use you to buy the home at 1124 Anywhere Street, will I be ensured to get it?” “I have my own agent, can they write the offer, or should I use you?”
They also had other “agents” who were working with them selling their assets in the same or different area, write an offer with a fake buyer to see if the said offer was presented to the AM, asset manager, handling the property by their agent.
If it did not come through, if the agent did not state they were representing the buyer, or if anything else was amiss – said the agent was let go immediately.
Like I said, they had their ways and those non-hacking agents were eliminated quickly.
A lot of what happened was happening out of reputation alone. Some agents had the reputation of bringing their buyers to offer much higher than the banks set the listing price. This was because those agents knew that the appraisal standards had changed.
They were much more stringent and the appraisals were lender side heavy. Therefore, if the Santa Clarita foreclosure (REO) was for sale at $300,000.00 and the buyer wrote their offer at $400,000.00, the bank looked at that as GREAT.
Of course, that was the offer they were going to accept. They just made the bank a cool $100,000.00. They forgot about the appraisal. Now the appraiser tells them what they are willing to lend on the home, most times it was much closer to the listing price, not the offering price.
The banks then changed up their strategy again. They now make those people who were making those “unrealistic offers” step up and waive off the appraisal contingency. Or they were to submit a signed document stating that they would come up to the offering price if the appraisal came in short.
Those new rules now had teeth and stopped the “super high” offers from coming in.
Selling Foreclosures by the Numbers
Something you may not know, speaking of pricing the bank owned and foreclosure listings, there was an entire process in place.
The banks became so good, they could hire most agents and have them doing it correctly quickly without error. However, the “negotiation” aspect was where real estate agents typically fell short. The same applies to a regular standard buyers/sellers real estate market. Negotiation is where most agents fall apart when it comes to being qualified to represent their sellers and home buyers.
The properties that the bank was having us sell started out with an address and order. A cash for keys agreement and my standing as being the bank’s representative. Due to me having served a lot of search warrants in my days with the LAPD, going to the door and knocking was not strange.
I would tell the inhabitants who I was and ask who they were. I told them that the bank has foreclosed on the home and asked them what their intention was. Are they going to move out peacefully? Maybe they want to wait for money from the bank to assist them with relocating? Maybe they are renters and have been paying their mortgage and were unaware until now, that the home was foreclosed on?
Most times the bank wanted a seamless “moving on” of the resident. So it was up to me to get permission to offer a Cash for Keys agreement. The inhabitant needed to turn over the home in good condition having been cleaned of all trash to qualify. And the CFK – cash for keys check was not given immediately upon obtaining of the keys. It took a few days, which was a turn off for most of those living in these homes.
The sheriffs were accompanying me on the evictions, like old times, when those folks did not agree and when the court gave approval to the bank to forcefully move them out.
There were some sad stories, especially pertaining to the renters. I had a few occasions involving elderly and disabled people. I do remember that in those cases Citi Group was more than honorable in their handling.
Some think that the bank shoots in the dark when setting the prices of Foreclosures and Real Estate Owned properties. This is not true. There is a lot of research and verification by others with the process of pricing real estate that is in the distressed category.
Simply put, if the home market is on the decline, the percentage per month of decline is found, then applied at a three month in the future estimate. The home price is them set with that calculation having been conducted.
If in 90 days the home does not enter a contract or sell, the agent the bank hired is fired and the home is relisted with another representative of the bank. It was cutthroat – but effective 🙂
The offers submitted had to be complete and all had to be reviewed by the said agent so they could explain them to their AM completely.
The advertising and marketing of these assets were made complete if the asset did not sell before then. Believe it or not, when someone screams foreclosure or bank-owned real estate, people’s ears perk up. They listen because those titles carry a “best deal” story with them.
When a foreclosure or bank owned market returns to a healthy one, you can see that the distressed properties return to a 1% level. Where only 1% of the homes currently on the market for sale are distressed in some way, shape or form.
What does “distressed real estate” really mean?
As a way of defining, a Foreclosure is any home that has completed foreclosure proceeding with the court which has jurisdiction. That means the owner can be you, or I, a hedge fund, a group, an LLC, a Bank or Credit Union – anyone.
A Bank Owned Foreclosure – self-explanatory.
An REO, Real Estate Owned property is a bank owned home. REO is a category on a accountants ledger sheet.
Pre Foreclosure – This is also known as a property that has had a Notice of Default filed against it. A NOD, notice of default, these days is typically filed about 90 days of nonpayment by the homeowner to their bank. During the first few months of the 2007 foreclosure fall, it took some banks literally years to file a NOD with the court. Some will also categorize Short sales as Preforeclosures.
Short Sales / Short Pays – these are homes, condos, and townhomes in which the homeowner cannot or will not make their mortgage payments. The bank is petitioned by a real estate agent who will then instruct the owner pertaining to what documents the bank needs in order to make their decision. Sometimes banks don’t agree with the homeowner selling their home short of what they owe. Maybe they have too much money on hand in various accounts which could be used to right their wrong. It could be that the homeowner also has many investment properties or has short sold with the same or other entity in the recent past. Sometimes the banks prohibit sellers under these circumstances from short selling.
I’m Connor MacIvor with SCVnest.com I know no better resource for you than me 🙂 – Seriously though, when you are ready to approach the distressed real estate, buying them or selling them, I’m your Realtor. Please reach out to me when you are ready and I promise to give you the best in advice, service, and commitment.