Bulk REO Properties Sold Through Bidding Transactions

New York-Buyers of bulk REO properties are working with sellers and lenders to make the process hassle-free and as streamlined as possible.

In order to avoid conflict or inconsistency, a majority of the transactions that are taking place are bid processes as opposed to negotiated deals, according to speakers at the recent Distressed Asset Roundtable and Exchange here, hosted by DS News.

The industry has changed dramatically in the last couple of years, one panelist noted, based on the dramatic, increased number of entrants who are buying or want to buy bulk portfolios of real estate-owned assets.

Speakers said they are seeing a lot of "wannabes" who really want to do "flips" or mark up properties in bulk portfolios, resell and never put up a penny. They say it is a competitive environment and the success ratio is often low. Buyers spend a lot of time doing due diligence and walk away with nothing, and they continue to bid on portfolios, knowing their chance of success is relatively low.

Banks have different philosophies for dealing with bulk REO, according to conference speakers. Some sellers only want to do end-of-the-year cleanouts and take writedowns. Others operate by doing big bulk sales at the end of every quarter. It changes from bank to bank. Some have even chosen not to do it anymore and have discontinued bulk sales.

But for those willing to be patient and work hard in this very dynamic market, there are opportunities out there, the speakers all agreed.

The last time there were a lot of bulk REO sales was the late '80s and early '90s. To be in this for the long haul, investors must be willing to have people available to do evictions and rehab, said John Berczuk, vice president of default administration, Wells Fargo Corporate Trust.

"These are old, beat-up homes, and you can't sell these properties. Be prepared to take on that piece. It's not like what you see on late-night TV. No one buys a house and flips it the next day. It doesn't happen. There is no such thing as a quick buck. If you are in it for that, you're going to have a tough time," said Mr. Berczuk. It's important to have people on the ground in certain geographic areas to go into these local municipalities and know the laws where the properties are located, he told conference attendees.

"You have to be able to handle code violations. You can't just sit in your air-conditioned houses," Mr. Berczuk said. "Walk the streets in Detroit. Know the neighborhoods you are investing in."

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