6 Quick Tips on How to Spot “Joker Brokers” in the REO Mass Market
By now, you’ve probably heard of the “mythical” bulk REO investment market. Before I continue, let me spend just a few lines explaining Bulk REO for those readers who are not yet familiar with the term.
The term REO refers to real estate that has gone through the foreclosure process and had to be bought back by the bank due to failure to sell at public auction. Gone are the days when investors used to fight each other over short steps in search of that bargain on an investment property.
Due to this shortage of judicial auction house buyers and the incredible rate of foreclosures in the US, an enormous amount of foreclosed inventory is returned to banks every day.
The unsold Real Estate inventory now held by banks is labeled Real Estate Property or REO. These are considered toxic assets that banks do not want to see on their books. Now they become the responsibility of the institution’s asset manager, who is assigned the tedious task of taking these toxic assets off the bank’s books by selling them through the MLS (Multiple Listing Service).
These properties are listed on the MLS by local real estate agents; Normally, the agent doing the BPO (Brokers Price Opinion) or inspection for the selling bank gets the quote. Once a real estate agent gets a few of these listings under their belt, they are known as REO agents. These REO agents are considered and treated almost like “rock stars” by local investors and wholesalers.
This “master plan” designed by the lenders was supposed to work like clockwork, but the weak real estate market and banks increasingly greedy with the asking prices of these assets have turned out to be an ineffective sales method.
Now comes the mythical Bulk REO… when these repossessed properties are not sold through MLS and REO Agents, the banks package them in “ribbons” or “packages” that are nothing more than a list of properties for sale at the sale.
Bulk REO and NPN (non-yield notes) tape bundles are offered at deep discounts for investors and hedge funds. Properties are discounted by up to 50% or more of their BPO valuation or mortgage value in the case of NPNs. This creates a great “dream come true” opportunity to make a lot of money in a short period of time for the savvy and funded investor.
– And this is where the dream ends and the nightmare begins…
What makes this incredible investment opportunity so great is also what makes it so horrible. The lucrative buzz generated by Bulk REO in the real estate and investment communities has brought a wave of newcomers to the field.
Unfortunately, these “prank brokers” have taken up residence online and are advertising and misrepresenting products that do not belong to them. They typically purchase these “bait” tapes using POF (Proof of Funds) obtained by innocent third party investors who have the will and wherewithal to act, but lack the source of the actual product.
These prankster brokers have made a circus out of this most lucrative investment opportunity and have left a sour taste in the mouths of real investors in the industry.
Quick Tip #1: As soon as you hear on the other end of the phone “I have a $500MM tape that costs $50MM in CA” don’t waste your breath to answer and hang up. These size tapes are exchanged between banks and institutions, never with independents. People who like to waste time by offering these ridiculous packages really should have a hobby doing something else. Not to mention the fact that banks don’t discount the product in CA, they don’t have to, it sells very well through the MLS.
Quick tip #2: It’s ironic that I’m even mentioning this while reading this article online, but I believe in sticking to reality. Beware of online forums and blogs, especially untrustworthy sites where anyone can post a few quick lines. All that glitters is not gold and my content is stolen more times than I care to remember. Don’t get me wrong, some forums and authors are authentic; just be sure to do your due diligence.
Quick tip #3: and this is more common sense than anything else, but we are all guilty of it at some point. Be on the lookout for unrealistic claims of earnings and fortunes. Don’t be fooled by “I have a direct connection to this bank or that bank”. There is no “connection”, the banks are selling to the highest bidder and they are not playing these idiotic games.
Quick Tip #4: If you receive an email from a joker broker, pay attention to the structure of their writing, their spelling, grammar, etc. The scammers never went to school; instead, they cheat their way through life. This is by no means a solid tip; I have seen some con artists steal someone else’s writing to carry out their schemes.
Quick Tip #5: any reputable bulk REO dealer or mandate will not trade as an “affiliate” of a corporation. These are usually internet marketers who are in a place where they don’t belong. These are the ones who use their POF to go buy tapes to sell.
Quick Tip #6: more times than ever, real companies will have products in the $1MM to $10MM range. Occasionally they may have something (like a commercial property) beyond that, but it’s not common practice. As with any other business, use your common sense and as I always preach: if it sounds too good to be true…you know the rest.
The good news is that if you are interested and able to invest in Bulk REO and NPN packages, you can make a fortune in a very short time. There are some companies that sell real products today (or, as we say in our industry, “retirement ready”), but you have to be very careful who you trust and do business with. Now go change your life by investing in REO in bulk.