DEFAULT MANAGEMENT...
...or How to Help Your Asset Manager Stimulate the American Economy
R.E.Os are handled by Lenders defiantly in many ways. Internally, these are now liabilities to them (as opposed to performing assets); they are also now where the buck stops. They owners and sellers of these properties they're not in the business of owning and maintaining. As with most sellers, their corporate culture and legal departments now dictate what to do and how to handle the sale. They typically use Asset Managers and the like with everything else, there are from varied backgrounds. Just like those handling the transaction at the lender's office, these managers may not know what they're really doing in the beginning hire... The entire setup for handling R.E.Os is very different and requires lots of attention to detail, high organizational skills and a keen eye for the local market. Obviously, most lenders can't handle the volume of market information at local levels. Hiring an out of area Asset Manager does not help either. All this can make R.E.O sales just as difficult in many ways. It is not all about the cash deal. There are many factors contributing to R.E.Os not closing, even though in general, they should be easier to handle since, technically, you're dealing with an agent who represents a direct seller (the lender in possession).
Banks will accept less than the list price. How much less depends on a couple factors. How long the home has been listed and how much activity they are having
SHORT SALE DIALOGUE:
Many agents shy away from short sales due their uncertainty and time it takes to obtain approval from the lien holder, but I would not let that discourage you. Find an agent that's willing to work and represent your interests as a buyer, preferably one who is experienced in short sales.
Just make sure your offer is written with all time frames to begin upon receipt of written approval so you don't spend out of pocket expenses for appraisals and inspections. Typically owned property and short sales are sold in as-Is condition with the Bank performing no repairs so you may want to have the home inspection done prior just in case you decide to terminate. You may save some time. Sellers obviously at this stage are not in any position to do or pay for any work.
Another area of concern is time. Be patient. It could take up to 60 days just to get to the review stage particularly with the glut of foreclosures and short sales in today's market. So be prepared.
I'm not certain about your area but due to the increased number of short sales, our local MLS has created for the first time a specific form addressing problematic concerns for buyers and seller. Maybe yours has as well.
SKILL SET:
Another area of concern is that during the listing period they could very well entertain or collect many offers and choose the highest best offer. Again this is where a good qualified real estate Broker can be worth their weight in gold. As long as you are prepared going forward the uncertainty and nature of the transaction and time it takes to get approval will be less stressful.
Short Sales require a different set of skill sets. First, you always want to make sure you deal with someone who is prepared to handle the paperwork and follow up and follow through required. Preferably, you want to deal with Realtors who are also Cohen-Brown's Certified Distressed Property Experts (CDPE) and similar, as I have been Certified over the past Dozen years.
These agents have achieved a higher level designation, and have additional knowledge to help handle the transaction. Obviously, this is no guarantee of anything since dealing with the right person at every level of either of these transactions always seems to be a crapshoot. Nevertheless, you can limit your exposure by looking too professionals with all the Industry designations. The next hurdle to cross is obviously the lender. Some lenders have become Short Sale machines, earnestly helping as many homeowners avoid foreclosure while avoiding the liability of taking a non-performing asset into their books, only to deal with the maintenance and sale of it at higher costs. Other lenders, seem no to be learning at all, even if they were among the first shoes to drop in this debacle.
R.E.O agents get the next job from their Asset Manager, because they did a good job on the last assignment. R.E.O Brokers are graded continuously by their boss, the AM, on every assignment, in some form or another. Those grades are coming from AM's that have high expectations. They don't grade on a curve because you are mostly new to the R.E.O industry, within this lays their security or insecurity. You may not get the next assignment, or someone else does.
It is a harsh and complex business with a lot of risk and out of pocket expense and you must be fluent in their Marketing Planning systems or submission requirements. The paychecks are also smaller, but the chance of getting continued business is higher, if you work hard and effectively.
Take some time and invest some money into R.E.O Certification classes. R.E.O assignments are not just randomly handed out. AM's are very concerned about who they assign their assets to, and they do their homework. We owe it to them, to do our homework too.
R.E.O LISTING AGREEMENTS:
The listing agreement will vary by Asset Manager and state. In my experience it has been signed by both parties the same as with other listing agreements. Typically when a foreclosure is assigned, there will be preliminary steps like confirming occupancy, performing a BPO, etc. before a listing agreement is entered into. And most Asset Managers have listing procedures and policies available for review which sometimes include sale forms.
Generally, each asset management company has its own listing agreement that the potential listing Broker is required to sign. I suspect they all say the same thing with only slight variations because of applicable state laws. Of all the R.E.O listing agreements I've signed, none have ever been signed by the asset management company.
This is going to vary greatly by area. Here, in California, the listing agreement is going to (probably) be in a format approved by both the local Bar and Real Estate Board, reflective of what has to be entered to follow Ca laws and regulations. California is an "Apparent lien theory" state and has some unique rules because of it. Other states also regulate what must be put into the agreement, so a good knowledge of their practices would be necessary. Another common area to consider, are those terms established by the Code of Ethics that all local boards have agreed to use.
R.E.O FRIENDLY:
I have noticed the poor quality of work that some of the R.E.O listing Brokers, and Agents are displaying lately here in Nor Cal. Things like untimely (or no) return of phone calls, unavailability on weekends, poor description of the listed properties (many with no remarks and no pictures), uncooperative assistance to buyer's agents and other behaviors that, not only make us all look bad, but also hurt the Asset Managers and ultimately the properties' owners.
I have inquired to some AMs, and they declare that they have systems in place to monitor the quality of their R.E.O agents, yet what I see everyday in the field is disturbing. Some of these agents keep getting more listings despite the quality of their service and their unethical behavior.
Used to see a lot of this when I had a large volume of BPO's. In my own neighborhood as well, there was a house up the street that went through a long BK. I used to mow the front lawn on occasion to keep it down. Once a sign appeared I thought we were in! Boy was I wrong. The grass went for nearly 2 months, no cut. I called the listing agent and got their back office Assistant who proceeded to say- 'we have Dozens of R.E.O properties to look out for' - my response is if you cannot handle it turn it back to the . That being said I called the Broker for a Broker on Broker chat. I said, I need your help, told him the story, and Bam, two days later a nice cut and every two weeks cut till it sold. This is just sheer laziness of the agent. I have my lawn man on lawns now two times a month. Just add it to the list. There are many out there who, are getting a lot of properties, and do next to nothing with them. I hear you on the phone thing to. I myself take calls till 9pm. When I get a call from a drive by person, I refer them to a realtor friend. He calls them right after I send him the note and info, he to responds to late request in the evening. We have closed deals like this. I ONLY represent the Seller. I can speak to the 'old' R.E.O folks in this area, they are coveting with their properties. It is these newer, mostly franchise folks who got an in with an R.E.O manager who provide service out there.
. You cannot reach the agents. They are rude. You arrive at a listing and there is no lockbox--you report it to them and nothing is done for weeks. This cuts across many lenders that they represent. Our boards require pictures quickly so that is not a problem--there is a $100 fine. There are several agents with listings whose offices are 2-3 hours from our area. I don't see how they check on the property, and it is often these properties that are vandalized and in the poorest shape. These agents give us all a bad name. This is not a new problem--I have seen this for over 10 years. I am not perfect, but my staff and I try very hard to treat all of our customers the same--very well!! We try to respond quickly and courteously, we'll walk new agents writing offers on our listings thru the process and encourage them to find more buyers instead of insulting them and telling them to read the instructions on a web site or worse yet, ignore their offer. I have had many agents tell me it was a very different process with my team than what they are used to and were very surprised they could even talk to someone. Like I said, we make mistakes to, but do our best to minimize them and we get the job done. All of our listings get sold! If any Asset Managers are in need of a new Realtor in the Greater Sacramento-El Dorado CA area Feel free to contact us for references, resume.
ASSET MANAGER POINT OF VIEW:
The unequivocal value of the Marketing Plan is something an Asset Manager companies and retains in the file to justify his/her pricing decisions if the particular file falls into a Equational Interface, for their delegated approval authority. That is for example a property with an unpaid principal balance of 100K or less and the appraisal and BPO acquired for the valuation of the property varies no more than 15% (Typically). If the UPB or variance exceeds these set limits then the MARKETING PLAN, is either sent to a Portfolio Manager, or above for review and concurrence or the Marketing Plan is sent to the client for review and approval. Sometimes if the UPB and variance both exceed the Equation, then a third opinion is necessary. That is when we order another BPO from a third party or another approved agent in our database. We go to the database to reconcile some kind of Market value.
You all know once the inventory hits our inbox we have 24 hours to get occupancy. Then if vacant only a few days for a full BPO, and the clock continues ticking on the agent and the Asset Manager, to get the property listed by the drop dead time limit of 21 days, from assignment to the Asset Manager. And in case you did not know this, your initial BPO is not always the determining factor in pricing, so if your BPO and the appraisal are off and a third opinion is necessary you can see how your opinion of value may differ from the actual listing price. Also you can see why once you provide the BPO; it may take up to two weeks or more to get a list price. Sometimes the final say on price is left up to the client who may be 2000 miles away from the asset and works evening hours and holidays.
The narrative in your BPO needs to be succinct and detailed so your Asset Manager can pound out a list price without having to go to other sources to support their decision. If that happens more than once or twice your Asset Manager will probably move on to another agent. The successful Asset Managers have their Agents trained, and that is why some agents in your area seem to get most of the listings, because they make their Asset Managers life less stressful.
How do they do that? They write their BPO's so the Asset Manager can look at the "low resolution" photos, and read the description and then cut and paste the narrative into their MARKETING PLAN without having to compose an entirely new description from scratch!! Believe it or not this saves 5-10 minutes on every Marketing Plan he/she has to produce, and with 10 or so a day that ads up. We can almost smell the property from the description....
I can not tell you how many "expert R.E.O" agents/Brokers do a BPO and in the comments section say, nice house, needs work, declining market will have to price accordingly. Company Marketing Plan completely worthless... I had an expert R.E.O team in Lake Tahoe, that had a 1 million dollar plus property in Kings Beach with outrageous views. He put in his narrative it was a handyman special, older remodel, deferred maintenance. The Appraisal came in indicating it was a Tear Down, my third opinion came in Tear Down condition. There were all kinds of supporting documentation from the City and County, stating it was uninhabitable: water line disconnected from the main, electric meter removed and gas meter removed.
What would you do if you were responsible? I reassigned the listing to another agent that actually went out and looked at the property and did not send a third party to just take pictures.
A stellar indicator of what is good for your BPO:
Subject property: 33 year old, three story, single family residence situated on a .33 acre lot in a high density upscale home development of identical and similar floor plan structures. It was constructed on a split-level foundation and the above grade structure encloses 4773 square feet in a 12 room, 5 Bedroom, 4 Bathroom configuration with an attached oversize three car garage. The property conforms to the neighborhood. Marketing Plans from the exterior, exhibiting some deferred maintenance, and low pride of ownership. Landscaping is marginal to poor and suffers from lack of hydration and may have reached the end of its economic life.
The interior is fair to poor condition and will require all cosmetic upgrading and renewal. There is evidence of damage to door trim and carpeting and there is a strong pet odor. The fixtures and cabinetry shows obsolescence, and there has been no updating done in about 20 years. The appliances are missing, several light fixtures are missing or broken and there are four double-pane windows that have lost their integrity, and will need to be replaced. Under the sinks is an indication of severe dry-rot that may need further attention. As the property stands today it will not qualify for all types of financeability. Please see additional comments page for estimated cost to cure to bring up to conforming Conventional and FHA/VA standards.
That is what AMs are looking for no more no less, unless circumstances warrant more and detailed narratives but that is another topic.
What can we do to be better R.E.O Realtors?
We realize that we are only as valuable as the Asset Managers we work for, find us. If I can promote your success, I want to know how! If you are willing to start a discussion of your own, that is great. However, if you would like to just throw out an idea, we will happily take the discussion to the next level of the Blogosphere.
Why are agents missing deadlines, well, in my opinion, its because Asset Managers are over whelming their agents and not bringing on more to spread out the work load. For example, I have a Realtor in my area, as of today he had 127 listings, all R.E.Os. He has some help, but they are office staff, not Realtors. He is overwhelmed but, afraid he will lose an Asset Managers, he just keeps trucking through and getting things done when he can and each day for his is a rush and frenzy of this world of Deadlines.
How Can We Do Our Part to Stimulate the American Economy?
Now this is a crystal ball question if there ever was one:
To answer this I will have to draw on what I know has been the issue and, am assuming still is with a few new twist thrown into the mix. My background includes 2 decades of work with three very large national Lenders in several capacities, all tied into loss reserves, cost of funds and default management. All areas of Lending tied into one important denominator cost of funds.
The less you need capital the more you can get and get it cheap. Many of you probably think that major s just make loans out of their savings account, depositor funds which they pay maybe .50-.90 BPs for, to the holder of the account as interest. A basis point is 1/10 of a percent so most American s are paying us the depositors LESS than 1% to par on their dough in their Bank . Then they lend it out to our neighbors or whomever at 5-7 BPS, and keep the difference (margin) as profit right? Well that does happen but most large Lending Institutions like to hold onto those funds because they have to have certain amount hand to cover those on Demand Deposits in case of a run on the , for example. If they fall below the reserve amount they get a visit from the Banking Commission, FDIC or some other regulatory agency and get a warning or get shut down like we are seeing happen with regulatory these days. Wells borrows money from the Federal Reserve and Wall Street and other places here in the US, and from investors abroad. They will lend to our neighbors, and developers and conglomerates. They in turn, want to build golf courses in wetlands or shopping centers 100 miles from nowhere, or whatever project seems like a good idea at that time. Banks are rated just like you and I with a type of credit score based on hundreds of factors, a major one being the quality of their Credit that they lent out to borrowers. As the values of the security (houses, etc) erodes the more at risk the Credit becomes and the more cash the Bank has to have on hand to cover that loss. This is where we are at with most of the Banks, they are not able to cover all of their potential losses without failing. So the more greedy and speculative the Banks were at lending, the more they need to have on hand to cover their loss and, they do not have it in Reserve.
When is a potential loss actually recognized? The answer to this from past experience is why the inventory has slowed down to a trickle for almost everyone, Asset Manager's included. You see the Lenders are still foreclosing and wading their way through all of these programs our current Administration has imposed on the industry and, several states and cities have also created their own stop gap measures to try and keep people in their houses. Are there loan modifications and, short sale programs they want us to follow too. Recession is also attributed to the current Administration trying to artificially create stability in the Banking system, and stock market, and housing prices. These Banks are sitting on thousands or hundreds of thousands of defaulted mortgages are working with the Administration to make sure they get their piece of the pie or the bailout funds before recognizing their losses. Imagine what would happen if all the Banks recognized their losses on all of these credits at one time? O.M.G, the stock market would tank, housing prices fall, s would fail, and the Fed would run out of funds to cover the losses. Even more people would realize holding onto their house when the one across the street is selling for a ½ of what they owe on their own house, and at a lower Payment too. A Bank must take their loss on the credit when it is recognized. It is not recognized until, it has been assigned to an Asset Management Company, and they assign it to an agent and get the BPO and Appraisal. Then the Bank is told what it is worth at market value....oops time to swallow the loss and report it to the stockholders and to the Banking Commission.
GARBAGE FEES: A Transaction, Marketing, Handling, Warehouse or other unearned "fees" charged at Closing: In our local area it has been enacted by several of the larger R.E.O agents. I have seen as little as $50 upwards of $350. Agents/Brokers can legally get away with it because they state it is predominantly stated in the MLS printouts and states them as "buyer to pay." It is my understanding that there currently is a lawsuit started by a buyer which may grow in to a class action as an unfair fee charged them. They are deeming it unfair because any fees charged to the buyer must have an adequate buyer consequence or benefit surrounding it. It appears that the listing agents use these fees to pay their transaction coordinators by masking them as Asset Mgmt Facilitation Fees. Buyers view them as scare tactics because if they do not submit to paying them their offer may not be presented, especially if it is a multiple offer situation. The buyer or their agent technically receive no benefit from this fee, they have no direct contact to the Asset Managers. They basically deal with the Transaction Coordinator for the mega R.E.O listing agent. There is one agent in town whose coordinator, we hear cleared $50,000! What is wrong with the picture? I feel the lawyers will start to have a field day with this one.
FORECLOSURE SCAMS: Locally here we had a very large instance of foreclosure scam. There was a person that used to be a real estate agent years ago and lost their license due to bad business practices. This person was working in conjunction with a local agent that would send them vacant foreclosure listings. With the sudden rise in R.E.Os in our area mega R.E.O agents were using combo boxes instead of the infrared lockboxes we normally use. As some of my fellow R.E.O agents know the s like to use a specific 3 letter or 4 digit combo box on every listing. The real estate agent would tell the scammer which listings had combo boxes and give them the code. This person would remove the real estate sign and rent it out to people that needed a bit of a hand up. By the time the police caught up to the guy, he had 13 homes rented, a list of 60 clients he was searching for, and a list of over 200 target homes. Shame on the mega agents that were not checking on their properties in timely fashion, or they probably would have caught it sooner....it took a few instances of agents going out to show the homes to their clients, and finding people fully unpacked and living in them.
DEFAULT AUCTIONS: None of my listings that have been pulled for auction have sold and often don't even make it to the auction date. The problem then becomes communication between all parties to get the property back on the market. Since I'm in the Northern California market, for the most part (except for some of the new construction condos), I see them being a bust. Most buyers are unaware of the buyer premium that is placed on each sale and find that then the property is not the "steal" they thought it would be.
The Auction Companies do require the listing agent to hold open houses usually for three weeks prior to the auction and if you have an "unsafe or unusual situation" then you are expected to conduct appointment only showings. If you don't accept their terms and conditions in total and register yourself on line, then they will not pay you the minimal commission. I'm sure each Company operates differently.
IN SUMMARY:
A good usage of a Marketing Plan as stated above. If you are a For-Real Salesperson, you keep these Plans in force....
All your REO deadlines are doable for someone that is not overburdened by too many Assets to handle. Most agents have registered at multiple Co's, and could have triple the numbers of properties you are aware of. Unfortunately some agents get fat, and most others are R.E.O Candidates. Only by virtue of the fact, that their Homes are at least 2 payments behind.
Ironically to have perfectly good Realtors, come across your Asset Manager's desk as -REO INVENTORY!....
"Do Your Part to Stimulate the American Economy"
Jill Berni - Broker/Owner OakTree Real Estate Services Celebrating 30 Years of Customer Service. Serving: SACRAMENTO,EL DORADO,and PLACER County,CA. 916 933-0555 toll free:866 933-0555 916 933-4454 fax
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