Transacting in the REO side of the real estate business is far different from a typical retail sale and requires an understanding of the foreclosure process.

Tip #1- understand the foreclosure process:

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:

1. The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure.

2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.

3. A third party buys the property at a public auction at the end of the pre-foreclosure period.

4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are known as bank-owned or REO properties (Real Estate Owned by the lender).

In today’s market cash is king primarily a result of the difficulty in obtaining readily available financing and the tightened more stringent underwriting guidelines?

Tip #2 Find yourself a good commercial Loan Broker/Lender:

Partner up with a firm like ours, www.albcommercialcapital.com .If you are buying as an owner user you can take advantage of the high leverage and good rate loan programs offered thru SBA. Investment properties that are generating income could qualify for a loan which is where your lender will help you in accurate decision making.

Tip #3  Be ready to proof up:

Be prepared to show verification of purchasing power upon request.  Finding properties may require you to first submit a Letter of Intent (LOI) that indicates what types of properties that you are interested in buying and at what expected returns.  Additionally you will be asked to provide a proof funds that demonstrates your ability to purchase and close on any properties found within your search criteria.  There are so many unqualified borrower’s on the market today that waste everyone’s time. Don’t fall into this category!

Tip # 4 Do your due diligence:

Typically on an REO the property is free of liens or debts, but that is no reason why you shouldn’t conduct a thorough due diligence. Confirm Property address and APN,, read environmental or engineering reports,  realistically determine any renovation costs, double check Prelim for liens against title, Look out for substandard notices, review any lease agreements that are in affect,  in the case of notes purchases be sure to read the loan docs and verify interest rate and loan terms. Due diligence is hugely important and this is why you should have someone on your team helping you with this.

Tip # 5 Work with an experienced Real Estate Broker

Not only can a broker help you find the deals bu they can also protect you.