Buying REO from Bulk Bank: An Introduction and Definitions

Most investors have heard of Bulk Bank’s Bulk Sales or REOs. In short, what this implies is that a bank or other selling institution wishes to dispose of several properties in amounts greater than 2 (usually greater than 10 or even 100). The reason they sell in these quantities is to remove inventory from their books AND without the need to individually list them with a local real estate agent.

In any transaction there are up to 4 or 5 positions that a person can occupy. These positions include: 1.) The final buyer, that is, the person in charge of the money; 2.) the buyer’s representative, that is, the person who brings the buyer to the table; 3.) The seller, that is, an investor or a bank that unloads your inventory; 4.) The Seller’s Representative, that is, the person who markets the inventory through its network; 5.) The intermediary: the person who connects the buyer’s representative with the seller’s representative.

Therefore, anyone can participate in this field. Either you meet people with money or you meet people who sell property or you meet people who know people.

First we need to talk about some definitions.

HEADBAND: This is the list of properties on offer. Usually it will be in a heavily lined format with addresses, basic information like bedrooms, bathrooms, etc. I suggest that if you are a middle man you don’t give this to everyone. Once an investor sees your tape and views it from another location, then it loses credibility.

NCND APPROVAL: This is a standard non-compete / circumvention – nondisclosure agreement. This is a document that protects your position in the transaction. Usually the seller and buyer will not sign them, but all other intermediaries will. This protects you from being bypassed in a transaction.

LAW: Letter of intent / interest. This is a non-binding document indicating that a buyer has an interest in a particular TAPE. This often allows them to get more information on a tape. It is completely non-binding but it has your name and it shows interest.

POF: Funds Test. This is a document usually written by a lawyer or a banker indicating that they have the funds available to purchase a particular tape. It does not show account numbers or show how much they have in the bank. It simply indicates that they have the ability to purchase a specific number of properties. For example, a buyer may have $ 100 million in the bank and is interested in buying a $ 5 million tape. The POF will simply state that it has the ability to purchase the $ 5 million. Nothing higher than this amount is mentioned. Proof of funds can be firm or soft. Ideally they are the same. The funds will be verified by the selling institution to ensure that the person representing himself as the banker is in fact the banker.

CHAIN ​​OF DAISIES: A daisy chain occurs when there are many intermediaries (including buyer and seller representatives) in a transaction. Ideally, there should only be 3 or less. When intermediaries start to grow larger than this, this could lead to deals being honored simply due to greed or lack of proper communication.

EXIT THE CLAIM: Many times these transactions will occur in which the owner (investor or bank) will simply stop claiming their interest. By doing this, any other links, such as overdue tax bills, will follow through to the new owner. Make sure to do your due diligence on every tape you receive. In some cases, you will get a full grant and a deed of sale. This ensures that there are no other links in place. Just because there is a tax lien or other lien on a particular house or package does not make the deal unworkable. It simply means that it is the additional amount that you will pay.

POINTS OF INTERMEDIATION: These are the additional points that are added to each tape to compensate for the middlemen. It is usually 3-4 points and will be added to the actual purchase price. All intermediaries share these points, usually equally. Therefore, as the chain of daisies grows, the less money each person will make.

Now let’s cover what each position does.

1.) REO SELLERS: These people are banks, lenders, investors, etc. they have the properties. They make all the decisions. Buyers who want things done their way won’t get a deal. Sellers own the properties and will ignore people who don’t follow their rules. They will most likely work through a real estate agent or other trusted person to do all the groundwork to attract buyers.

2.) REO SELLER REPRESENTATIVES: These people are often referred to as Seller Mandates. These are the people who market the homes on behalf of the REO seller. Most of the time, these will not appear in the MLS. The Seller Representative usually has their own network of people they deal with and who buy packages from them. They do all the groundwork to ensure the deal runs smoothly once an agreed offer has been established.

3.) REO BUYER: This is the buyer who often buys deals with cash. Trying to get a loan or use transactional funds (borrowing money from a short-term hard money lender) will often prevent you from doing business with that REO seller. The REO buyer will need to show a POF from their banker indicating that they have available funds. This REO buyer can be individual or in a group. Regardless, they will need to show that they are paying cash and that they can close in a few days (not weeks).

4.) REO BUYER REPRESENTATIVE: Often times, the REO Buyer is too busy to follow all leads of all the deals that may get their attention. The buyer’s representative is the person who normally brings the buyer to the table. This is the person who knows the person with money.

5.) INTERMEDIARY: Although both the Seller’s Representative and the Buyer’s Representative are ideally Intermediaries, sometimes there is a need for an additional person (s) to connect these two parties. This is the place where too many people can participate in a transaction where one person knows someone who knows someone who is related to someone who knows someone. When in this position, it is critical to be able to tell a buyer / seller representative how far you are from the other contact. This is a lot like “6 Degrees of Bacon”, Kevin Bacon’s movie game. If you are a true Intermediary, it is better if only 1 of the Buyer or Seller is removed. This means that you are directly with the buyer’s representative and the seller’s representative. Sometimes you may be removed from one or both of these representatives. Try to keep that number to a minimum. The more brokers there are, the more likely a deal will fail AND the less money everyone will make because everyone is splitting that 3 or 4% brokerage points / fees.

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