Bulk REO, Fact vs. Fiction Part VIII: "What's the REAL Story on Shadow Inventory"

I just came across this report and it validates everything I've been saying for the past year.

Amherst Securities just published a white paper entitled "Housing Overhang/Shadow Inventory = Enormous Problem", and per their numbers, the housing market is FAR from "recovery".

Rather than recap the blog post or the white paper (which I HIGHLY recommend you read) I simply have this to say:

The next time you are speaking with an REO asset manager at a bank, any bank, ask them about this report. Send them this report. Get them to CONFRONT the numbers in this report.

Maybe then we can shake these banks into reality, and they will start releasing their inventory in the volume and pricing that the private markets (and my clients) will pay.

Bulk REO, Fact vs. Fiction Part VII: "Fraud, Misrepresentation, and the Handling Thereof"

I don't know how I got this hat, but I guess someone HAS TO DO IT.

Two days ago my client and I were put on a call with what was supposed to be an asset manager for Freddie Mac. That person never made it to the call. Instead another "broker" got on the call and started dictating the way my client was to proceed including sending POF to this "asset manager". We said "fine", and simply wanted a confirmation that this "asset manager" in fact works for Freddie and has the authorization to sell SFR REO on their behalf and thus has a fiduciary mandate to vet potential buyers (and thus ask my client for POF). My client told this "broker" they will gladly POF to Freddie, but not to a "broker" or "title company" unless either are charged with that duty (and can be verified) by Freddie.

The pool of assets was an all AZ deal (a healthy 8 figures) that was allegedly for sale for around 50 cents of current BPO.

As the call proceeded we come to find out that this person DOES NOT work for Freddie Mac at all and is not an asset manager, but instead some "third party" that Freddie uses to sell bulk SFR REO. We said "great" let's do a quick verification of that fact and we move forward. The "broker" (which I have now learned is an attorney) hemmed and hawed and wouldn't let us do any verification and then wanted to terminate the call because we wouldn't follow "his" protocol stating "this isn't going to work out". ARE YOU KIDDING ME!

I then called Freddie Mac to inquire as to who this person was (as we now had the name of this "asset manager"). I spoke to the Director of Bulk REO sales at Freddie Mac (a very nice woman). She informed me that Freddie is just starting to entertain bulk sales, and there is an involved registration/vetting process for any buyer. They sell at 75-80 cents off current BPO, and most importantly the "asset manager" I was dealing with was in fact nothing more than an investor currently going through the approval process to buy in Bulk from Freddie himself.

Once again not a single piece of data that was represented to me or my client was true. A COMPLETE MISREPRESENTATION.

I don’t know about you but I am no longer willing to tolerate the fraud and misrepresentations I encounter on a weekly basis. The other day someone told me that many "brokers" don't like me. That I'm too abrasive, that I'm too direct. Well that may be true. But I ask you: what would you do when your livelihood is at stake and you've lost nearly a YEARS worth of income due to the lies, fraud and misrepresentations of others. Ethics is severely lacking in this industry and I am willing to be "the bad guy" if that means I can help curb (or get rid of) the liars, cheaters, scammers and fraudsters that we are all tired of dealing with.

I am confident the real players will welcome my stance, my “aggressive” due diligence, and continue to work with me. And those that protest, get upset, or otherwise deride me for this post, well those are the ones we ALL NEED TO STAY AWAY FROM ANYWAY.

The FDIC is BROKE! Now what?

This past Tuesday the FDIC announced not only was it broke, but in the RED for over 8 BILLION dollars. Now what?

As discussed in my previous posts the FDIC has taken back over 100 banks this year alone, with another 1000+ on their "watch list". And while the FDIC is currently working diligently through their 5 distressed debt third party sellers, as well as their defaulted 1st Resi PPIP program, to my knowledge they have not yet announced any plans for the sale of the thousands of SFR REO they currently "own".

And now with the FDIC in the RED, distressed banks should be HIGHLY MOTIVATED to sell their distressed assets and SFR REO inventory.

January should be a VERY interesting month!

Another One Bites the Dust

Working in distressed assets is kind of like playing pin the tail on the donkey on the edge of a cliff. Not only can't you see, but one wrong move and you're SPLAT!

My optimism and “beingness” to succeed is being tried at this moment. Another one of my deals just all but died (and the carrot being dangled seems just as unreal).

This was a note sale on a large retail center. The property is almost done with the foreclosure process and REO is just around the corner. Our buyer (and when I say "our" I mean I was an intermediary/referral party and didn't control the buyer or the bank) repeatedly stated they wanted to buy the note before foreclosure, issued an LOI, and when the bank finally said "bring us a PSA" it was all but a done deal. At least that is what we were told.

Then at the 11th hour we get an email listing a litany of objections as to why they won't be consummating the trade. Most of the email was BS and simply "fear" and "lack of understanding" of the deal. The carrot was "we'll wait till it goes REO and revisit the trade". I won't hold my breath.

And like that another 6 figure commission is all but a memory.

I have a stomach ache. I should be used to this by now. I'm not.

I'll get over this loss soon and continue to "warrior" on.

But right now I feel like screaming on the TOP OF MY LUNGS until I can NO LONGER SPEAK.

In fact, I think I'll do just that.

The First Barrier to Learning (or doing business); Thinking You Already Know

We are all guilty of it. Colloquially it's called "knowing enough to be dangerous" or "having enough rope to hang yourself" or some such other expression. But in business, such a barrier can mean the difference between doing a deal, and going home.

I used to think I knew it all. Then, as I matured, I realized I didn't even know what I didn't know.

This is acutely true in business. I can't tell you the number of times I was on a deal, thought I had it under control, only to realize (sometimes begrudgingly) that I had no clue what was going on, what the seller or my buyer were talking about, and I had to go research just to keep up.

If you’re lucky, no-one will find out until after the deal is done, and you've been paid. If you are unlucky, no-one will do business with you from that point forward.

It's hard sometimes to "eat crow" or "swallow one's pride" or "admit one was wrong" or "didn't know". But I think the most offensive and disingenuous action a person can take, is to continue to assert their "rightness" or "knowledge" even in the face of overwhelming proof to the contrary.

It takes "a big man", courage, to admit you are "wrong" or "really don't know what you are talking about".

I run into this scenario often in my practice. It happened again just yesterday (and continued today). A perhaps well meaning "broker" (an unlicensed "investor" and "entrepreneur" I might add) spouting off his "knowledge" when it was obvious that he had KNOW IDEA what he was talking about. At best he was erroneously forwarding someone else’s false "knowledge" or false data as true, at worst he was just unintelligent, and arrogant.

I know I've certainly made the same mistake. Perhaps still do. But I have learned to be humble in the face of contrary data that clearly demonstrates that I was "wrong" or at best "was missing data".

In fact, I have as a standing rule, that if anyone can prove in writing my data to be false, I will humbly "eat crow" and admit I was wrong. I would rather KNOW than be "RIGHT"!

So a lesson to us all (and lest one think I think I have all the answers, I KNOW I do not). Have the courage to confront the truth. And even more, know when you are "in over your head" and seek to learn, not assert your "knowledge".

Bulk REO, Fact vs. Fiction: Part VI, "Intel From the Trenches"

Yesterday I turned 40. Aside from a nice brunch with my father and a few good cigars, it was a less than desirable birthday. Four of my bulk REO trades all but fizzled into oblivion. So I thought I'd share my experiences with you to help you better understand the real Chaos that exists in the Bulk REO world.

I used to think "other brokers" were making a fortune doing bulk trades. I used to think, wow there is so much business out there and there are so many "brokers" doing deals, and so much product, it shouldn't be too hard with my knowledge, experience, expertise, and contacts/clients, to get in on this "gravy train".

Boy was I wrong. I think giving birth to a Rhino would be less painful.

The four most recent "abortions" were each with a different bank. The first was a healthy size deal with a less than healthy bank. Things started off quite well. We got the asset pools, we modeled them, underwrote them, and submitted our indicative bids. We had a call with the bank and were moving forward to PSA. Then in the 11th hour a senior bank official decided that their October "one off" retail sales were good enough that they were not going to move forward at this time on the bulk trade. What? Are you kidding me? Everyone knows October numbers are the result of August and September sales, the peak of the retail Real Estate market. So this bank, who incidentally has never done a bulk trade, thinks they are now going to sell over 500 homes (or some significant portion thereof) in the Q4 because they did well in Q3.

Bank #2 was also a decent size trade, with a bank that needs help. Again we got the asset pool, modeled, bid, and had a call all set with the bank. Then we find out that the left hand doesn't know what the right hand is doing, and all the homes we bid on are already sold or under contract and that the bank has to do a complete inventory audit and thus is not doing any Bulk trades at this time.

I'll spare you the details from the other two but suffice it to say that if these four banks are any indication of the internal chaos that exists in the 1000+ "troubled banks" in this country, we are in for quite a ride during this "recovery".

I bumped into this blog today which echoes my sentiments in my last two postings. The banks are simply unmotivated to do any significant bulk trades even though they are taking back RECORD numbers of REOs.

As I subscribe to the "no such thing as failure" school, I will continue to plug on as I firmly believe the clouds are gathering and it won't be long before many, if not hundreds of these distressed banks will be forced to sell their distressed assets, REOs and the like, to the private markets.

Or, as has been the case for over 100 banks this year alone, they will be consumed by the FDIC and that entity will be forced to start bulk selling.

Bulk REO, Fact vs. Fiction: Part V, "Market Manipulation Continues"

I saw this article today and thought it was a perfect indicator of what is REALLY going on in the foreclosure markets nationwide.

In my previous post I touched on the market manipulation that led up to the "bubble burst": artificial demand through cheap and fraudulent capital causing explosive supply, followed by massive defaulting of that artificial demand leading to a massive over-supply, all driving down real estate values, and driving up REO bank inventory (see Part IV for the full story).

According to this report: “For California, Deutsche Bank projects that as of Q1 2009, 54.3 percent California homeowners were underwater on their mortgages, and that within two years, 67.9 percent will be under water. Projections for areas like Modesto and Stockton are more extreme with 2011 estimates at nearly 90 percent”.

Let's really confront this. More than Half of all homes in California are upside down (homes worth less than the unpaid principal balance of their mortgage) and that number could go as high as 90% within 2 years in some communities.

The sheer magnitude of this is staggering, and if the country, as it usually does, follows the trends of CA then we have only scratched the surface of REO inventory as of 2009.

I recently worked on a trade with one of the Majors in California. It didn't consummate. We (my client and I) were told that 70% was the floor of any bulk discount. We couldn't get to this number. And yet the pool we worked on sold in smaller chunks and in "one-off" contracts for 75-80 cents of current AVM.

So here is my question. With MILLIONS of homes already in foreclosure and/or REO and with MILLIONS more homes going into foreclosure, and the Banks clearly withholding their inventory to artificially prop up prices by artificially restricting supply (thus driving up "competition/demand" on what they will sell, and thus keeping prices "high") then how or more importantly WHEN will REAL VALUE be established for REO inventory? And when will the Majors start selling in Bulk, at a real enough discount to entice private capital?

I asked this question in my last post, and I got some very interesting answers. One viewpoint was to let the banks "trickle" the inventory onto the market over time, so that prices could stabilize. That's a great idea. But with several million homes currently in and going into foreclosure in the near future, this "trickle" will take many years. Do we simply wait for this process to run its course before new housing starts and other Real Estate indicators can ever recover?

Let's look at it from a Banks' perspective. A bank keeps a loan on its books as a performing asset so long as it DOES NOT affect it's TIER ONE capital requirements. Meaning, as soon as a loan defaults and is labeled "nonperforming" the bank MUST compensate with a % of NEW capital. So when the Majors took billions in TARP funds what they essentially did was prop up all those distressed assets. Why should I sell my distressed assets (whether loans or REOs) when I can just borrow all the Tier One capital I need from the American taxpayer to offset my books. What motivation do I have to let the market WORK and sell these distressed assets. The answer is NONE, and there is the problem.

Due to Gov't meddling, the Major Banks have not had to sell their distressed assets at the volume they would otherwise need to raise capital to offset their losses. They can default the loan, take back the home as REO, all the while "propping up" their capital requirements with tax payer borrowed money.

And when they do sell the REO, they can "one-off" them at or near current market value. They don't need the capital! They got it from the Tax Payers. So why sell the millions of REOs they have in Bulk at a discount to private firms? There's no need. They'll just sell them, slowly, and pay back the Tax Payer over several years. Seems reasonable enough, doesn't it?

But as we all know, there is only so much "bailout" any of us can take or will tolerate. At some point the Banks will not be able to "prop up" their books, and they will be forced to sell their assets on the open Market. I don't know if that will happen this year, or next, but at some point, there will be NO MORE MONEY for them to prop up their books, and at some point I think they will all be FORCED to start Bulk selling these Millions of homes to private funds to raise the money they need to operate.

The "X" factor I see here is the role of the FDIC. Right now that agency is strapped for cash. Yet every week I get my FDIC notification of the 1-5 or more banks "taken over" by the Gov't, and in each instance hundreds of millions or billions of dollars worth of notes and REOs are put into Gov't recievership for liquidation. And currently there are over 1000 banks on the distressed "watch list". There simply isn't enough money for the FDIC to take over all these banks.

So whether the banks themselves, or the FDIC, there will be a "tipping point" and Bulk Sales of SFR REOs, at a significant discount to entice private capital, will have to ensue. The only question is when?

What do you think?

Addendum: Rather than make this a separate post, I wanted to add this article that I just read (Saturday 7 Nov) that I think drives home my point. REO inventory is declining while foreclosure filings continue to rise . We are in for a much longer haul than the talking heads on TV want us to believe. And this should be a blessing to those of us working in the distressed asset space. Opportunities abound.

Bulk REO, Fact vs. Fiction: Part IV, "A Possible Solution"

Economics 101 tells us that supply and demand determine market value. When supply goes up, and demand goes down or remains level (thereby increasing supply) prices come down. And when demand goes up and outstrips supply prices go up as well. It’s a pretty simple formula. But what happens when either the supply side or demand side are artificially manipulated? Artificial Booms and Depressions.

That’s what we have right now. For years due to cheap capital and almost non-existent regulation (fraud) in the mortgage market, the demand for housing in this country went through the roof. The manipulation with FNMA (Thank you Barney Frank and Company) set up a scenario where “anyone with a pulse” could get a loan for a home. And with this raging demand came the housing boom. New construction of homes and condos proliferated. Whole new cities were built. New condo construction in most major cities exploded out of control. Apartment buildings by the 100,000s of units were converted to condos. The supply side of the equation was attempting to keep up with the “demand”. But as we now know that demand was artificial, manipulated, and false. And a large portion of those “buyers” are now in default, and losing their homes. (I left out the entire scope of how mortgage backed securities and derivatives trading helped drive the demand for and creation of mortgage products that pushed this demand even higher but suffice it to say Wall Street played a large role in this current crisis).

What we are left with are millions of homes and condos vacant, or going into foreclosure and soon to be vacant.

So what’s the solution? Simply, all that supply that the artificial demand generated needs to be absorbed. One smart broker emailed me from my last post and suggested that if the banks were to “dump” their entire inventory onto the market, it would create such an oversupply of product that it would further depress prices. Well I have to agree, except why is that a bad thing. Until the Real Estate market establishes a true “floor”, a true base line of home values based on supply and demand, all transactions now and in the future are and will be based on “artificial values”. For how can someone buying a home today, and getting a mortgage based on an appraised value, do anything but lose money, and lose equity, if there is still so much inventory, and thus still a built in “value killer” in the market.

As I see it, the only way to solve the housing crisis is for the banks to release their entire REO inventory to the private sector. The large funds out there will over the next year or two (or 5) buy up most if not all the banks inventory at a nice discount. This at once will set the floor for housing nationwide. Yes in the short term it will depress current home values. But once that inventory is bought from banks, and the floor is established, those private firms will begin selling those homes, for a profit, and home prices will begin to steadily rise, based on supply and demand, back to a REAL value level.

Like a sponge, the only way to get more water in it, you first have to wring out all the water that currently resides. So until this entire surplus inventory is “wrung out” of the system, we can never see a true recovery in the Real Estate market.

How many more foreclosures and REOs are being created right now by banks loaning money on a “false floor”.

Think of it like this. If one steps on a foreign body, and then gets an infection in their foot, they can soak their foot everyday, and take antibiotics all they want, but until that foreign body is removed, that foot won’t heal.

So the excess inventory the banks currently have needs to be put out there for the market to truly correct itself. This will not be popular in the short term, but as I see it, the only way a long term, real recovery, can ensue.

What do you think?

Bulk REO, Fact vs. Fiction: Part III, "Where Is All The Inventory"

Maybe you've seen this scenario: a "broker" claiming to have access to Billions of dollars worth of REOs for sale at 40 cents on the dollar (or less). And if you are/were like me, you asked yourself: "Is this for real? Could there be that much inventory? And more importantly, is there anyone really buying or selling that many homes?"

When I first started "chasing" Bulk REO I was already an experienced and successful Realtor both residential and commercial. Yet after many months of chasing these "unicorns" I realized just how ill-informed, dare I say gullible, I really was (it went so far as I was on several fee agreements for multi-billion dollar bulk REO deals). Of course I had no control of the buyer or seller, couldn't verify a thing, and just sat around hoping and praying these deals were real. They weren't; ever, and I got quite disheartened and quite dis-illusioned at the whole thing! So I started doing research to educate myself. Just how many homes were there in foreclosure in the United States? And what were they really worth? And most importantly was ANY entity out there selling or buying them in such large blocks and at such steep discounts?

According to RealtyTrac there are approximately 1.5mm foreclosed homes listed for sale. They are listed with REO brokers around the nation and anyone can look them up. Additionally through various sources I have been able to detect about another 3 million homes that are in, or are going into foreclosure this year.

How many of these 3mm are now represented in the 1.5mm listed on RealtyTrac I have no idea but it's safe to assume a certain percentage of them are already REO and the rest are somewhere between NOD (notice of default) and REO. Some predict foreclosures will be at or near this level again next year as well.

So with a little bit of 5th grade math I've figured out the following: Using 2 million homes as a base (which would mean there are at least 500,000 homes not listed on RealtyTrac but are REO and part of this years 3 million, as well as at least another 1 million somewhere between NOD and REO, also not represented on RealtyTrac, to say nothing of where the 3mm foreclosures from last year might be) and $150,000 as the current median home value in the US (which is low and conservative) we come to a total of approximately $300,000,000,000 in BPO value of ALL the homes either in or going into foreclosure in this country. This number may be much higher. I don't think its any lower.

So it seems there are hundreds of Billions of dollars worth of several million REOs in this country, many for sale. And it seems there are anywhere from 500,000 to over 1,000,000 more homes, somewhere in the foreclosure process, but not "listed" anywhere. So where are they? And are they for sale? And more importantly, are any of them for sale in bulk, at a discount? (for our purposes I am using the word "discount" here to mean under 60 cents of current BPO)

Today, if you call BofA/Countrywide, Wells/Wachovia, FDIC, FNMA, and many other of the top banks, you will discover that by and large they DO NOT SELL THEIR REO INVENTORY IN LARGE BULK POOLS AT A DISCOUNT. As of recent for example, BofA is "one off" retail selling their REO inventory at or near 90% of BPO. The same for FDIC and FNMA (I encourage you to take the time and call them yourself. Remember don't take my word for it, go find out for yourself. LOOK DON'T LISTEN).

About once a quarter I have seen FNMA release bulk pools but they have been relatively small, by bid, and from my observation not premium homes or locations (my guess they are the homes they couldn't sell retail through their REO brokers network). I've seen the same from Wells and a few other banks: sporadic releases of small bulk pools of what I'm guessing are homes they couldn't sell through REO brokers. I have also seen larger bulk pools of "rust belt" that are trading cheaply. Homes in the 5000-10000 range, and even cheaper. But if the inventory is so large as my math above seems to demonstrate, then shouldn't there be more bulk deals?

(BTW: If anyone that reads this can prove in writing they did a trade with any of the Majors above (or any other entity) in BULK (and not "one off" contracts) at a discount greater than 60% then I will gladly "eat crow" (and you will become my new "best friend")).

So if the major banks are sitting on hundreds of thousands if not millions of foreclosed homes, are not selling them in large bulk pools at significant discounts because they are getting near retail pricing on their "one off" sales, then are there any Bulk trades being done?

And where are the 500,000 to nearly 1 million homes not listed on RealtyTrac but reported? Are they all between NOD and REO?

And if these numbers are so large (the largest since the Great Depression by some accounts) then can the banks continue to "one off" sell them? Or will they need to bulk sell them at some point, at significant enough discounts, to entice "private capital"?

I will take a stab at answering some of these questions in my next post.

(Part IV coming soon)

Bulk REO, Fact vs. Fiction: Part II, "Documents, Documents, Documents"

How many times have you seen this scenario. "I have a Bulk REO pool of 100mm in Southern California at 50+3, simply send me an LOI/NCND/POF/MFA and I'll send you the tape".

I'm sure like me, you've gotten dozens, maybe even hundreds of such emails, many even with an excel spreadsheet listing all the homes in the pool.

First, my client and I check the pool, and invariably MOST have anywhere from 5 to 10 different banks listed as "owner". How can a single pool be sold by a single "seller" (an entity that can legally convey title) when 5 or 10 different entities show up on title as the legal owner. The answer is they cannot. The only entity that I know of that can sell multiple bank assets is the FDIC and only from banks they have taken over. But as I covered in a previous post, the FDIC is not currently bulk selling. I know. I've tried, several times, through several channels, and each one has confirmed the same thing. They sell on a "one off basis" with a separate contract for each home, and they are getting near 90% of BPO. My client recently bid on 90 homes from the FDIC and they accepted 7 homes at a below 70% discount. And each have to be bought separately.

"LOI": Stands for Letter of Intent. In my career as a Commercial Agent I have drafted hundreds of these documents. They are offers, non-binding, and spell out basic transactional terms. They are signed by the buyer and seller as an agreement to business terms, and is the precursor to a PSA (purchase and sale agreement). In the Bulk REO world I have seen all sorts of LOI "templates".

"NCND": Non Circumvent Non Disclosure. I have a stack 2 feet thick of these, and I don't sign them anymore (neither do my clients). How many times have you been told "just sign my ncnd" and I'll get you on with the "seller". Upon which you are put on the phone with another broker, given another NCND and the cycle repeats. I can appreciate an "intermediary" wanting to make sure they get paid, but in this business, due to the chains of people (usually unlicensed and without a clue) these documents have become all but meaningless. I have personal relationships with my clients. I have their respect and loyalty. I don't worry about being circumvented. But in the Bulk REO world the norm is a chain of brokers, from across the country, none of whom have asked the right questions, qualified the deal, gained access to a "seller of record" (on title and legally empowered to convey that title at closing) who demand that their NCND get signed up front. RED FLAG.

The real deals I have worked on go as follows. My client gets an asset pool and verifies the owner (via title search) gets on a call with that seller to discuss it, an indicative bid is modeled and submitted which includes the broker fees, and if the principals can come to terms, a PSA is drafted. What happens if the seller wants 63 cents and the buyer underwrites at 64.5 cents but was forced to sign a 3% "fee agreement" up front? We all want to get paid. But the deal is worth what it's worth, and any Lic RE agent will tell you sometimes to make a deal, OUR commission becomes part of the negotiation. Invariably though there will be a "fee bully" in the mix who has some inflated idea of their importance in a deal, and the deal dies over "broker fees". I am all for "defending" my commission. But at the end of the day the banks want what they want, and the buyers will pay what they will pay, and if you can get them to agree, and there is something left over for you, do you take the deal, or let it die because it's not 3%?

"MFA": Master Fee Agreement. In a standard Real Estate transaction, the "listing" broker has established the fees to be paid up front in their listing agreement with the seller as well as the fee sharing with the cooperative broker. In the REO world, most banks also have an established fee they will pay Lic Brokers who consummate an REO transaction. Sometimes the fees are "added" to the net. The bank wants X the buyer will pay Y and the difference goes to the brokers. If your lucky, you have a deal where a full 3 or 4% is available. But this isn't a "set in stone" principal. So when I get a deal where some "broker" (again usually unlicensed and ill-advised) is dictating fees, I usually walk. They've never closed a deal anyway, and don't have control to begin with. So the first thing to check, once you have a real seller, is whether there is a fee being paid by the bank (or if a private seller, them). If not, then a discussion of fees with the buyer is in order, but in my experience this never takes place OUTSIDE the context of the deal.

"POF": Proof of Funds: Here is the biggest fraud that I've seen in this industry. ANY BROKER ASKING FOR A BUYER TO PROVIDE A PROOF OF FUNDS UP FRONT WITHOUT FIRST PROVIDING AN AGENCY AGREEMENT OR POA/LOA FROM THE SELLER/OWNER OF RECORD SHOULD BE SUMMARILY DISMISSED. When I list and sell Real Estate, my name is on the listing agreement, and my "authority" to ask for such a document is easily verifiable. The same is true in a Bulk deal. Only the seller of record or their fiduciary agent has any business asking for let alone recieving a POF from a buyer. So if they aren't a fiduciary agent (and prove it in writing) and ask for a POF, RUN! There are many Fiduciary Agents (real sellers "reps") out there. These companies routinely get hired by and sell distressed debt on behalf of financial institutions. And there are ONLY 5 (there were 2 when this post was originally written) authorized to sell FDIC debt from banks in Gov't receivership. But if some "broker" is claiming to have authority to ask for POF from your buyer, ask him to PROVE IT in writing. If he won't, no matter what the story, I suggest you RUN!

Bulk REO, Fact vs. Fiction: Part I, "Tangled Terms"

Like many of you, I have been working in the Bulk SFR REO space. I started in August of 2007 and in the last 2.5 years have spoken to probably 1000 people or so. Here are some of my observations.

“Brokers”, "Reps", “Mandates” and "Intermediaries"..Oh My!

Jargon, all professions have it. But what does it mean. And more importantly, is it even real.

I am a Lic. Real Estate Agent in the State of Florida and have been since 2002. I spent several years selling homes, and moved into the commercial space in 2004-5 where I specialized in selling apt bldgs (large and small) to Condo Converters. When that market dried up I moved into distressed asset liquidation. Thus my title is Lic RE Agent or loosely “broker”. When I was a dues paying member of NAR I was also a “Realtor”.

What I have noticed is the majority of the people I have met in the Bulk REO or distressed asset space are not Lic Real Estate professionals. In fact they aren’t Lic. in anything at all. They call themselves “entrepreneurs” or “investors”, or some other euphemism. And while I can appreciate and even encourage such a spirit, it is the lack of formal training in Real Estate that has caused much heartache. Let me explain.

As a Lic. real estate professional I must learn Law, Standards of Practice, Ethics, etc, and renew and update this knowledge every 2 years. An unlicensed person learns none of these things and unfortunately most of the unlicensed people I have encountered are seriously lacking in one or all of these categories. This isn’t a slight to them, but a “heads up” to the rest of us. The first question you should ask anyone you are working with is are they licensed in anything? This will tell you a lot about their knowledge, experience, understanding, and even possibly ethics level. This doesn’t mean if you are dealing with a Lic. Individual that all will be roses. I routinely get inaccurate information from other Lic Agents, not out of malice, but out of the naïve or inexperienced viewpoint of forwarding data without first verifying it. IF SOMETHING ISN’T WRITTEN (BY THE SOURCE), THEN IT ISN’T TRUE.

“Mandate”: This is the most misused term I encounter. The term mandate is used in reference to an act by which one individual empowers another individual to conduct transactions in that person's name. In this sense, it is used synonymously with Power of Attorney. As a Lic Real Estate agent I do have certain “powers” granted to me when I list and sell a property and there are different levels of representation I can be bound by (agency) one of which can even give me the power to execute a contract on behalf of my client. But that is a VERY rare instance. In the Bulk REO world this term “mandate” however is thrown around loosely to mean “any broker who happens to have a connection to a seller or buyer”. If someone claims to be a mandate or says they speak to a “mandate” I always ask one thing. PROVE IT. Show me the POA or agency agreement. I’m not an attorney but I do know it is fraud to claim to legally represent someone when you don’t.

“Intermediary”: This is a fancy term for a person in a chain of people. In that chain may be Lic Professionals, but more often than not it’s just a chain of “brokers” with no formal training, education, experience, licensing or expertise. Thus the information being passed on by one of these people is RARELY, IF EVER accurate. Why? It’s not because these people are bad, or stupid (although I have sometimes found both also to be true), but rather uneducated and ill-informed. Meaning they don’t know what questions to ask, and what to look for. When they are given an “outpoint” (piece of information that doesn’t make sense or couldn’t possibly be true) they don’t know any better to question it, or don’t know who to ask to verify it, and then forward it down the line as a “true datum”, passing from person to person, arriving to you as “fact” which upon a little due diligence, is just the opposite. Case in point: I have been presented with at least a dozen “opportunities” to engage “platforms” and other “selling entities” (non-profits, etc) that are somehow working with the FDIC in selling Bulk REO. One major outpoint. I have a former client that works for the FDIC and he has confirmed for me that the FDIC is not bulk selling REOs. I have verified this through several other channels, and I challenge anyone to prove, in writing, otherwise.

I have one stable datum in this business. If someone is claiming something to be true, I ask them to prove it in writing. If they can’t or won’t, I move on as it’s undoubtedly a lie. Maybe not their lie, but someone on that chain is forwarding false or ALTERED information and the person forwarding it to me didn’t know or care to verify it. LOOK, DON’T LISTEN is a motto to live by.

“Reps”: This is another euphemism for a person that speaks to a buyer or seller. They may or may not be licensed and most likely don’t actually “represent” anything (in the legal or agency sense).

"Partner": Invariably is just another intermediary on a chain of intermediaries. They may or may not be Lic. in anything and all above applies.

Are you tired of bad news?

Hi there,

Thank you for stopping by my blog.

I've set up this blog for one simple reason. I'm tired of all the bad news. I'm tired of the talking heads eagerly salivating at the latest employment numbers, stocks prices, home prices, or the number of on our streets or on the battlefields around the world.

And I want to remind people that the world isn't coming to an end, the sky is not falling, and they can win at life.

ENOUGH IS ENOUGH!

Did you know that what you put your attention on, becomes more solid, becomes more real?

Did you know that your own thoughts create your own reality (meaning that what you agree is real, becomes so)?

I invite you to create a little.

Tommorrow make a decision. Don't read the paper, and don't watch the news.

And simply decide that it will be a good day. That everyone you work with WILL do a good job.

That the deal you are working on WILL go through.

Try it, and ENJOY!