Many Lenders Offer Long Lists of Repossessed Real Estate
Even in the recession, finding a good piece of property to buy isn’t as easy as just calling a real estate broker.
There are lots of avenues to be explored, including sales by various government agencies, auctions, foreclosures and properties held by financial institutions--known as real estate owned, or REOs.
An REO is property in the hands of a lender which has either foreclosed on the borrower or has received a deed-in-lieu of foreclosure from a borrower who walked away from the property.
The number of REOs has doubled in the last year for many local banks and savings institutions. But like many real estate deals today, one borrower’s misfortune can turn into another buyer’s opportunity.
“People are losing their homes at a much higher rate,” said Lawrence M. Simpson, vice president at the asset management division of Coast Federal Bank. The result, he said, is a growing list of REOs at financial institutions. “In this environment we’re getting all sorts of homes on our REO list,” Simpson reported.
“Our L.A. County list of REOs has easily doubled within the last year,” said Karin Hopkins, REO manager at Glendale Federal Bank. “Some of the properties are completely trashed. Others are million-dollar homes.”
It’s worth noting, however, that some big S&Ls;, such as Great Western, don’t sell REOs directly to the public. Other lenders, such as Coast Federal, say they are willing to cut fees just to move a property. To look up REO properties for sale by lenders, usually it’s best to call or visit their local branch offices for a list.
Some examples of Glenfed’s REOs for sale in the San Fernando Valley include a $95,000 condo on Woodman Avenue in Van Nuys, a three-bedroom home on Babcock Avenue in Studio City listed at $389,500 and an eight-unit apartment complex on Klump Avenue in North Hollywood listed at $379,900.
Nearly all of Glenfed’s 100 REOs in California are represented by a broker, Hopkins said. “Our brokers are more than willing to walk people through.”
Contrary to public perception, Hopkins said, “the properties are not necessarily all that troubled.” In many cases, she noted, it’s the borrower that was troubled, not the real estate.
Are they good deals? “When I list a property, I have quite a bit of leeway that I can negotiate within,” Hopkins said. “But we don’t have fire sales. That doesn’t do Glenfed or its shareholders any good.” As for buyers who want to purchase with no money down or no payments for several months into the loan, she said, “those offers are not taken seriously.”
Still, Hopkins says that the average savings on a Glenfed REO property is 5% to 10%, and if the property needs considerable rehabilitation, or is located in a neighborhood with many other properties for sale, the price may be 20% below the current market price.
Every lender has its own approach to selling REOs. At Coast, “we took the disposition of assets more seriously than other institutions and we’ve been very aggressive,” Simpson said. “If we have to take a loss, we do it.” Lists of all the properties for sale are available at local Coast branches, and Coast has an auction of 91 properties in Los Angeles, Orange, San Bernardino, Riverside and Ventura counties scheduled Sunday through auctioneer Kennedy-Wilson Inc. Simpson said Coast received 6,000 calls in less than two weeks asking for more information about the REO auction.
All of Coast’s other properties are represented by conventional real estate brokers. While bank managers don’t market the properties directly, “we may waive fees for appraisals, loans or credit reports to get someone to buy one of our properties,” he said. “I’m very aggressive in moving my properties.”
Great Western Bank, based in Chatsworth, doesn’t release any list of REOs, reported spokesman Kevin Hawkins. “We try to make ourselves as invisible as possible so that the properties won’t have a stigma,” he said. “It’s a matter of policy and practice not to fire-sale properties. . . . There aren’t any bargains to be had.”
Ronald S. Barak, chairman of the real estate department at the law firm Manatt, Phelps, Phillips & Kantor, advised, “You have to find your way through the maze and contact the right person at each institution.” Barak added: “If you have an institution that’s already written off its losses on a particular property, the managers may be more mentally prepared to offer bigger discounts.” Also, he said, “the smaller community banks are probably more flexible.”
“Most of the large banks have a real estate group now to work out their troubled assets,” said Andy Kane, Western region managing director at the accounting firm Arthur Andersen & Co. But, he added, “I don’t think the banks have organized themselves yet to be in the disposition mode.
“The people that have been buying” REO properties “from financial institutions often have existing relationships with those lenders,” Kane said. That’s beginning to change, however, as the volume of REOs increases. “I think that banks are going to be significant sellers of real estate in the next two to three years,” he predicted.
