REO, HUD, & Short Sales REI Advice

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REO, HUD, & Short Sales REI Advice

by Tod Snodgrass

There are potentially very good investment opportunities, for knowledgeable and experienced Real Estate Investors (REIers), with REOs (Real Estate Owned, usually by a bank), HUD homes, & Short Sales. Taken together, think about them as Triple Investment Opportunities or TIOs. A word of caution: For those who are relatively new to REIing, you should know that many investors are reluctant to get involved with TIOs. That is because one or more of TIOs often have unique and/or negative rules and regulations attached with them, compared say to dealing with a motivated/flexible/distressed homeowner who is about to lose his home to foreclosure or a tax sale, etc. With a homeowner, the deal CAN be as simple as a cash-for-keys/deed-in-lieu transaction. Not so much with TIOs.

This is not to say that all TIOs should be avoided. Far from it. What is required is that you be up to speed as much as you possible in terms of the good, the bad and the ugly about these types of opportunities. Potential TIO problems may include one or more of the following:

1. Long (and sometimes unexplained) delays often occur

2. Terms and conditions may unilaterally be changed without warning

3. Deals may be arbitrarily killed at the last minute

4. If you want to turn on the gas or electric for your inspection, you may have to pay for it. In some cases, you can’t turn on the water even if you did want to pay for it

5. If you don’t use THEIR in-house title and escrow services, when you close, you may have to pay for everything, even for the title report the seller owes you

6. All deadlines are strictly enforced and if you need an extra day to close, they may cancel on you and keep any deposit money. But if they need extra time they can often get an automatic 30-day extension

7. It is not unusual for them to assign the contract to anyone at any time, but if you try to assign it they can cancel and keep your deposit money

8. The buyer (that would be you, the investor) may have to pay the transfer taxes even if it’s customary for the seller to do so. There are some exceptions to this, but in most states, that is the case

9. Each side gets to issue its own instructions to the escrow company, but if anything in your instructions conflicts with the agreement, their agreement prevails

10. You usually waive the right to put a lis pendens on the property (i.e. to cloud the title)

11. With REOs, the bank can change their mind last minute and accept another offer, unilaterally

NOTE: One common sense remedy that can sometimes be applied is for you, as the investor, to insist that the entity sign a contract that obligates both parties to perform as stipulated in the contract, with no carve outs or exceptions

12. No changes allowed on the buyer’s side once the agreement is signed; not necessarily so for the entity selling it

13. Any deposit funds the investor may have put into the deal (earnest money, etc.) unfortunately usually goes hard (nonrefundable) after the last contingency date (inspection or loan) has passed. So, if escrow falls through after the contingency date has expired, the investor may lose all of the deposit funds put into the deal, with virtually no recourse

14. Even if you are granted a cancellation refund (of deposit money for example), the escrow company can still deduct fees first in some cases

15. If you fight over releasing any deposit money as liquidated damages, they may sue you for more

16. Reasons to cancel for inspection contingency purposes must be real solid issues, and they want to see the inspection report to back it up before they decide to refund any money to the investor.

What We Do: Quickly provide short-term, first position, private capital funding, to real estate wholesalers, among others. Contact info: Tod Snodgrass, emdfunding1@gmail.com, 310-408-7015

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