Top Liquidation Techniques

One third-party vendor is seeing more of its mortgage lender and servicer clients negotiate cash for keys in order to reduce timeframes and loss severity for managing REO assets.

While the typical amount used to be $500 to $1,000, the aggressive offering today is about $5,000 if the borrower moves out by a particular date, and the amount decreases after that, according to Brent Taggart, senior vice president of business development and the commercial division at Green River Capital, an REO asset management and loss mitigation provider based in West Valley, Utah.

Trained neighborhood home consultants from GRC discuss HAMP and the option of a short sale with borrowers pre-foreclosure and work with them once the home has become real estate owned.

The company spends time educating the homeowner about various remedies the bank is willing to offer. Quite often, he said, the borrower has no idea that the lender will often wave the deficiency.

"They don't know they will be offered in some certain cases money at the end of the cooperation-cash for keys or cooperation for deed-in-lieu or cooperation for a short sale," Taggart said.

"At the end of this, if it goes through, the clients will pay them to help them get on their feet again. The lender will help them find a place to live. Maybe provide first and last month's rent and the deposit. In some cases, it's as high as $25,000 offered on a cooperation with a short sale."

While the third-party vendor is seeing "tremendous success" in terms of conducting door knocking for its clients, one of the hardest problems for its servicer clients is uncovering "the intent" of the borrower.

Do they want to pursue a short sale? Do they want to continue into foreclosure? Are they interested in a modification? These are some of the questions being asked.

Before, the borrowers were broken into categories of reperformers and foreclosure/real estate-owned assets.

Now there's "a reperformer, a short sale and a foreclosure/REO," he said.

In the past, servicers have been "reactive" to individual borrowers who reach out to the lender asking if they will accept a short sale offer, says Taggart.

"Most of our clients now are finding they need to be proactive because the time it takes to get an asset through foreclosure is long."

Green River Capital will work with the real estate agent, helping the lender with valuation of the property. On the REO side of the business, GRC is strictly finding an agent to help sell those assets.

"It's about dealing with the client and setting their expectations of what the property is worth, and where we think we can sell it. We include any type of repairs that we may need to do to make it comparable to market properties.

All of this is done in-house. Asset managers are looking at BPOs from agents, repair bids, comps in the areas, and gaining more from other sources so we can get the best value."

Monthly reports show how many people visit a particular home this month as well as how many offers were given. GRC advises clients every month if they think there should be a price list reduction.

"You've had tremendous showings in this property, so it's probably priced right, or you haven't had any showings because people who have come through say it's priced too high or they don't like it's near a major highway. They don't like there are issues in the property in terms of outside repairs," added Taggart.

"We want to know what potential buyers are thinking about each property. All of the communication is saved in the system and is very transparent."

While "auctioning" is a tool lenders have used for many years, this liquidation method is being revived to move not only residential properties but also home sites, condominiums, townhouses, commercial buildings and land in 32 counties, according to John Dixon, president of the auction company John Dixon & Associates in Marietta, Ga.

Recently, he said, bidders snapped up 265 bank-owned properties in a giant two-day real estate auction, paying approximately $2.1 million, with his company managing the sale.

The auction began in Atlanta with 164 properties selling for $1.1 million in bidding that lasted for more than three hours. The next day, the auction continued in Macon, where approximately 250 people jammed into a room to purchase the remaining properties for another $1 million.

"We had active bidding across the board, with 64 registered bidders in Atlanta and 154 registered bidders in Macon. In addition to those who attended in person, another 110 people in five states registered for online bidding, and the online bidders purchased a substantial portion of the property," said Dixon.

"These properties, most of which were lots, had been on the market for months, but we got them sold in two days."

Dixon attributes the success of the auction to "effective marketing and the seller's willingness to accept market prices for the properties."

"There have been a lot of multi-property auctions for lenders, but most sellers have been reluctant to accept today's market values. This lender, who had acquired the properties in a loss share agreement with the FDIC, was willing to sell the properties at absolute auction, with no minimum or reserve," he said.

"Knowing that all the properties would sell to the highest bidder made bidders willing to invest their time in attending, and that created more competition for the properties," said Dixon.