Bank foreclosure market needs a platform

A significant portion of our company’s transaction volume in the first quarter of 2007 was investment properties, i.e. bank foreclosures and HUD homes. I must say that I have had day and night experiences dealing with those two types of properties. On the one hand, dealing with the bank foreclosures was challenging to say the least. Not the properties themselves as much as the process. For starters, you have to struggle just to get a hold of the REO brokers, so you can get a status on the contract you put in. Sometimes, they would tell you that your offer had not gotten accepted and you would get the very strong sensation that the offer had never even been presented. And lastly came the motherload of them all: we placed a bid on a property that had $5k BTSA and low and behold, the property was purchased by a client of the selling REO broker. Not that there’s anything illegal about that. But isn’t the REO broker at an unfair advantage point being that they are the ones receiving and presenting all offers?

On the other hand I have been dealing with HUDs as well. Completely different story. We place bids through a system called Bidselect and we win some we lose some, but at least you get an answer the Monday after the bidding ends and you can even search the offer results and figure out why you did or didn’t get the property. Most importantly, the broker representing HUD still got their commission all the same.

I would venture to say that I would be willing to contribute a small fraction of my commission in a deal to the company providing the platform (like BidSelect) just to make the transaction run smother and most importantly, fairer.

Photo Credit: Respres

The inconvenient truth about bank foreclosures

As it exists on its present form, the system banks use to dispose of their REO foreclosure properties absolutely stinks. One would think that the most democratic and (at the same time) efficient way to liquidate real property would be some form of an auction. The US Marshalls auction items seized from alleged criminals at Bid4Assets.com. Taxing Authorities auction off foreclosed properties at the courthouse steps the second Tuesday of each month. Even items confiscated in Nazi Germany during World War II got auctioned off at Christies Great Estates in 1945 (yes, I love the History Channel).

The way banking institutions are liquidating their property portfolios is inefficient (for lack of a better word) and it is costing them millions of dollars …

Case and Point

About a week ago, I got a call from my office to inform me of a great deal on a foreclosure property in the Southwest Houston part of town. The property had just appeared on the MLS and our daily houston foreclosures search had picked it up and the numbers were fantastic. Great equity, monthly cash flow, hardly any work needed … perfect candidate! It was early evening and we headed for the property immediately and it was just the right deal. The following morning, we revisited the property with one of our experienced investor clients and he asked us to put in a full price cash offer immediately. Just over 45 minutes later, the offer was prepared, signed and submitted to the real estate broker representing the bank. Total time from property being listed to offer being submitted: 13 hours (counting 9 hours of the night).

The phone rings and it is the bank’s broker calling and  you know what I’m thinking: Done Deal! Instead he tells me that the property had been sold PRIOR to it coming on the market…

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Now, I have no way of knowing what amount the property was sold for prior to it coming on the market and I certainly don’t see a point in putting a sold property on the market, but I can tell you that as far as auctions go, this doesn’t rank very high. This practice of favoritism in this business happens quite a lot and it does not serve anyone but its beneficiaries. The banks are leaving money on the table by accepting offers that might not be as high as they could be. Also, average investors and buyers are being denied an equal opportunity to make a purchase.

However, there’s no sense in raising a problem if you cannot suggest a viable solution. So here it is. About 5 months ago, I argued in a post in this blog that the bank foreclosure market needs a platform. In that post, I argued that other establishments like the Housing and Urban Development (HUD) have used a more efficient web based platform called BidSelect, to liquidate their government foreclosure portfolios. In this post, I want to make a more specific argument:

In the current state,  bank foreclosure disposition is a frantic process that rewards speed versus offer quality. Moreover, real estate brokers representing banks have the absolute power to decided whether present  offers (or not), their order of presentation, and arbitrary cut off times beyond which no offers are considered. The inconvenient truth about bank foreclosures is that if banks want to maximize the amount recovered by the liquidation of their portfolios, they must do two things:

1. Establish a standard deadline (a la government foreclosures) by which all offers must be submitted. This deadline must be predetermined and sufficient for most active prospective buyers and investors (i.e one week). The order of submission should not matter and it should be no basis to penalize or reward a particular offer.
2. Set up an independent web based submission medium (a la Bidselect) that will collect all offers and get them ready for review subsequent to the bid deadline. This system would not eliminate listing brokers as they would still collect their regular commission just the same. But believe you me on this one point: Whatever, it will cost banks to utilize a web based platform, it doesn’t even come close to comparing to the money they are leaving on the table with the current system.

But of course, that’s just my modest opinion.

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Erion Shehaj is a real estate entrepreneur and chief executive of
Signature Real Estate: A real estate firm specializing in conservative
real estate investments.  Email Erion Shehaj