Investing In REO’s
PROCEDURE TO BUY REO PROPERTIES
In order to qualify for the purchase of REO properties from banks or funds, standard protocol must be followed:
- Only serious well qualified cash purchasers are eligible.
- Mortgage Financing Is Not Permitted at Closing.
- Non-Circumvention Non-Disclosure (the “NCND”) Agreement must be signed by the purchaser.
Investors must submit a Letter of Intent or Letter of Interest (the “LOI”) stating the following critical information:
- Property Types Desired
- Preferred Geographic Locations
- Desired Rehabilitation Levels (i.e., zero to light, medium to heavy, etc.)
- Initial Order Amount
- Price (Desired percent of market value)+ 3% brokers’ fees
- Exit Strategy: i.e., Hold/Lease and/or Resale
- Future Intentions: i.e., Periodic and/or Monthly Purchases
- Investors must submit a Proof of Funds (the “POF”) stating that the buyer has liquid assets or an available line of credit sufficient to cover the amount of the desired transaction.
- Satisfactory proof of the purchaser’s liquid funds in the amount of the purchaser’s Letter of Intent is required early in the process by virtually every seller of REO bank owned real estate. No list of properties will be provided to the seller without such proof.
This requirement may be satisfied by any of the following:
- current bank statement confirming funds on deposit in the purchaser’s account
- letter from bank officer with contact information, including phone number for seller to verify purchaser’s funds on deposit (or available line of credit)
- letter from reputable escrow company confirming it is holding the buyer’s funds in escrow, to be released to the seller if the transaction closes.
The LOI is signed by the purchaser or the purchaser’s attorney and is usually on the purchaser’s letterhead.
The POF can be signed by either the purchaser, or the purchaser’s financial institution that can confirm the funds on deposit or available line of credit.
The POF must disclose the financial institution where the funds are on deposit, and provide a name and telephone number for verification of the funds. The funds remain with the buyer’s financial institution until the closing of title. Only if the properties offered comply with the buyer’s requirements as stated in the LOI, and satisfy the purchaser’s due diligence review, is the buyer expected to complete the transaction.
The LOI & POF should usually be addressed to “Seller of Record”. This will give us the flexibility to place the order with those sellers offering properties that most closely match the types and descriptions of properties listed in the investors’s LOI.
PLEASE “PLAY BY THE RULES”
Respect the bank’s right to insist that all buyers submit the required documents before any information about the specific REO properties is released. Investors who want to purchase these properties at wholesale prices are required to follow the protocol established by the banks. These are standard banking practices required in the bulk sale of foreclosed real estate and cannot be waived. We adhere to these rules in order to insure that REO deals close properly and to the satisfaction of all involved parties.
Investors who insist on detailed property information prior to providing a LOI or POF may be better served in a secondary market, although the prices will be higher.
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