“Taking a Property Back as an REO Was My Worst Deal”
By Dave Van Horn
There was a time, when taking a property back as an REO was my worst deal, and this was especially true when dealing with second mortgages.
Taking back an REO (Real Estate Owned) wasn’t always a good thing, especially if the borrower went delinquent on their first lien and the property didn’t have enough equity to cover the junior lien. The chances of recovering any revenue were often dramatically reduced in those types of situations.
Also, if you have to take back an REO, this means that you were unable to exit the deal through a payment plan with the borrower, which is the more common exit when dealing with second mortgages.
Today, for PPR, it is a little bit of a different animal, since we’ve started working in the first mortgage space as well.
In first lien world, taking an REO back could be one of your best deals, and here’s why:
1. Less Legal Fees
If you find an REO or a note that’s close to foreclosure, which will soon end up being an REO, you’re usually further along in the legal process and closer to an exit, thus you will have less expense in legal fees. Also, buying an REO usually means that all the other liens and encumbrances have been removed.
2. Quicker to Foreclose
You may be able to foreclose quicker, especially on a vacant first lien. In many states, you can accelerate the foreclosure process and/or redemption periods on a note where the property is vacant.
3. More Valuable Asset
If I had a choice of buying a note or an REO and they were similar in price, I would definitely take the REO. Again, it comes back to being in control of the property and closer to an exit. Selling an REO can oftentimes be more valuable to a real estate investor, who’s looking for a good deal to flip or rehab.
Anytime you have a first lien, where the property is vacant and soon to be an REO, this can be a good thing. As those of us in the note business say, move in all directions at once until you find the best and quickest exit.
So, what is an REO for you, a good thing or a bad thing?
(September 2014 Newsletter)