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What You Need to Know Before Working with Foreclosures

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By Marylyn B. Schwartz, CSP.

foreclosure-web2RISMEDIA, March 30, 2009-There are legions of agents who seem to think that they will have discovered the proverbial pot o’ gold if they are fortunate enough to have a bank or banks hand them their asset recovery properties to sell. This is definitely a case where one should be careful what they wish will happen. While many properties have been foreclosed and will be hitting markets in droves (depending where you work,) carrying the process from acquisition through to closing is no easy task. From a personal perspective of one who managed departments where as many as 250 properties were in inventory at any given time, be assured that one needs excellent organizational skills, a strong support team surrounding you, vendors that are reliable and skilled and a broker that fully supports and indemnifies the actions of the agents and/or staff under the E&O insurance in order to manage REO’s (real estate owned).

Before an agent agrees to take over a foreclosure property for a bank, they must ensure that they understand fully what the bank requires of them.

Following is a list of questions/issues to which answers are essential:

- Does the bank expect the agent/company to pay vendors directly for regular maintenance and utilities and then bill the bank in one itemized monthly invoice? Bills may include utilities, lawn care, needed repairs, clean out, securing the property and the like. If the bank wants the agent/broker to pay invoices, it is incumbent on the broker to set up an account for these payments. This account will have to maintain a certain amount of cash since the bank may require proof of assets. In addition, the account must comply with regular auditing practices. It is important to note that even when the bank is invoiced monthly, it could take four weeks or more to receive reimbursement. Cash flow issues are often deal breakers for companies who are on tight budgets.

- Does the bank require the broker of record to prove they are bonded? In the event there is an emergency on a property such as a freeze-up, can the broker assure the bank that it will be taken care of quickly? That is not to say that the bank will not have insurance on the property. For example, it may be that the incident is shown to have been a result of negligence on the part of a vendor hired by the agent to winterize the property. There are many reasons that a problem ends up being shown to have been related to negligence. It is the nature of managing vacant properties. Some E&O companies will not indemnify REO properties unless they are made aware that the agents handling the properties are correctly trained to do so.

- What will the bank require from vendors hired by the agent/broker who will be performing services on bank homes? Banks may ask for proof that the vendor has a current license, is bonded, has the equipment to handle the jobs asked of them, has references, etc. The bank will likely ask the agent to provide a list of vendors who work for them and are available 24/7 as needed to work on the homes. Even if they don’t ask for the list, the company had better have one.

You may pick up a property that has to be secured immediately at 5 p.m. on a Friday night in the middle of winter. The bank is not going to say, “Oh, no problem. You have dinner plans at 7 p.m.? Well, you go and have a ducky time. We’ll turn the house over during regular business hours on Monday.” Always be prepared for the worst. If you don’t have a plumber who will winterize quickly or a locksmith who will secure immediately, what then? Big problems, that’s what. The strength and reliability of your vendor list is key to your success as a REO specialist.

There are times that a property may be given to an agent and the property is not vacant at the time of acquisition by the bank. The bank expects the company to be able to rid the home of occupants before securing it. Does the agent/company understand the process for “cash for keys?” If not, neither is ready for the tasks that may be required by banks.

- Does the company have a standardized training module for agents who may work on a foreclosed home? It is tough to imagine that any bank will give a property to a company where there is only one agent who knows the ropes. No one can know when someone must cover for an absent agent. An emergency on the agent’s part is no excuse for not being able to care for the home.

The bank will want everything done in duplicate and often triplicate on standardized forms. For example, if an estimate is needed for a repair and the bank asks for three bids, those bids had better be synergistic and easy to compare. There is no time for oranges and apples when it comes to approving a bid. Creating forms for billing the client, generating estimates, comparing bids, etc. is an important component for ease of communication with the powers to be at the bank or the bank’s representative.

While the reader may see these points, and these are just a sample of what is important to know, as over the top if the company is only handling a property here or there, they are not. Working REO properties is a specialized field rife with pitfalls along the way. It would be nothing short of sophomoric on the part of anyone to assume they could “wing it” and just handle things as they arise. While banks who handle many properties know what to require of their brokers, on occasion a local S&L or credit union may have a home or two that they want to entrust to a local agent/broker. It is the agent’s/broker’s responsibility to guide the client in such instances. In the final analysis, the buck stops with the company and the broker/owner.

Setting up an asset recovery division requires thought, planning, financial and personnel resources and a willingness to go the extra mile time and again. In the final analysis, even when the bank is paying an acceptable marketing fee to the agent, the work required to bring the home through to closing is substantial, and many hours of effort will be expended in the process. So, think carefully before taking the plunge into the world of REOs.

Marylyn B. Schwartz, CSP, is an expert in real estate and corporate sales training/management and team development. She is president of Teamweavers and a trainer for Leader’s Choice.

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