Locate a foreclosure pro

Most mortgage lenders do not sell directly to REO buyers: They don't like the unfavorable publicity; and they want to promote good relations with Realtors. Because mortgage lenders expect Realtors to bring them new loan business, these same lenders can't then turn around and become FSBO (for sale by owner) dealers. In business, reciprocity rules.

To find REOs, cultivate relationships with realtors who specialize in this market. To identify REO specialists, look through classified real estate ads such as that shown on page 149.

When you identify several advertised foreclosure specialists, give each one a call. Learn their backgrounds. Do they only dabble in the field of REOs and foreclosures, or do they make this field their full-time business? When I telephoned an REO specialist in Orlando, he talked with me for an hour and a half about property availability, financing, purchase procedures, hot areas of town, rehab potential, estimating repair costs, portfolio lenders, strategies for buying and managing properties, selecting tenants, and a dozen other related topics.

At one point during our conversation, he asked, "I'll bet you haven't talked to any other agents who know as much as I do about REOs and foreclosures, have you? I've been doing this 23 years. Last year, I sold 90 houses and rehabbed 16 others for my own account." Pretty impressive!

Knowledge Counts

This agent represents the kind of pro you want to find. Although many agents claim expertise in REOs and foreclosures—"Sure, I can do that for you"—only a few actively work in the field, day in and day out, year after year. When you work with an agent who's in the know, you won't have to do your own legwork. This agent will screen properties as soon as—if not before—they come onto the market. He will then notify you immediately.

Plus, these specialized agents will stay on top of the finance plans that portfolio, government, and conventional lenders are offering to home-buyers and investors. For example, my REO pro told of portfolio lenders doing 100 percent LTV homebuyer and investor loans for acquisition and rehab. (FHA 203(k) might prove best for this type of financing—but FHA rules may stack up more foot-dragging paperwork than programs run by portfolio lenders.)

HUD, VA, Fannie, and Freddie Won't Sell Direct to Buyers

No matter what approach to REOs and foreclosures you choose to follow, talk with realty pros who make the business a career. If you buy an REO from HUD, VA, Fannie Mae, or Freddie Mac, you must process your offer through a licensed real estate agent. Only in exceptional circumstances would any of these organizations deal directly with a potential buyer. Moreover, each of these organizations follows its own procedures.

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