Posts for category ‘Foreclosures’

The last post gives you the macro view of why the housing market collapsed but this is only one view. There is plenty of blame to go around on this one. Let’s take a look at some of the other players of shame in this housing crisis shall we? Some of the other parties that bear culpability in the mass housing hysteria are:

• Real Estate Agents
Yes my chosen profession is to blame for being the blindly optimistic cheerleaders that helped whip the housing hysteria into a nice frothy mix of “irrational exuberance”. Oh the commissions! As prices skyrocketed the net commissions rose too. It was a profitable time for real estate agents. Everyone was interested in buying real estate and everyone was qualified by their mere ability to fog a mirror.

• Loan Agents
They were the first link in the toxic loans that destroyed our financial system. They pushed ever more exotic loans to a naïve consumer base. They knew that those consumers never actually read or understood the 3 inch stack of loan documents they were signing. They told the home buyers what they wanted to hear and glossed over the little details that would blow up in all of our faces. They laughed among themselves as they came up with funny little nicknames for these toxic loan products. No documentation loans were accurately called “Liar Loans”. People with No Income, No Job, and No Assets were given NINJA loans that were created just for them. Many loan agents knew what they were doing was criminal but the pressure to meet sales quotas was intense. Predatory lending among minorities was rampant but it was not done in the way that the mainstream media presents it. Hispanic loan agents preyed on other Hispanics, Chinese agents on other Chinese. You name the group and there were plenty of loan agents who were members of that group who stepped up to prey on their own people. Predatory lending was dependent on the misplaced trust that was able to be created among peer groups. I find it unbelievable that the even the most flagrant financial predators will never be prosecuted for the crimes they committed. They continue to “service” their communities to this day.

• Appraisers
Appraisers did cooperate in the mass hysteria but I’m not as hard on them as other participants. In reality the true value of a home is whatever a buyer is willing to pay. I think the appraisers were reporting on the bubble as it formed and were not really an underlying cause of it. The strange thing is how the politicians have overreacted to the role of the appraisers by instituting unreasonable restrictions on appraisers while largely ignoring the outright criminal behavior of loan agents. I think that has to do with the weaker appraiser lobby.

• Banks
Entire books have been written about the banks and their role in the housing crisis so I’ll just give a quick overview here. The banks wrote bad loans and then passed the risk onto others by bundling the bad loans as securities and selling them on Wall Street. They succumbed to greed and lost but they are being allowed to continue business as usual. I believe that capitalism works best when the winners reap the rewards and the losers are allowed to die. It is this business Darwinism that revitalizes our system. The insolvent banks should have been allowed to fail in a way that saved the overall financial system. If a bank is too big to fail then it is too big to exist. The bailouts should not have been structured the way they were. The Feds should be overseeing an orderly wind down of all the financial institutions that needed to be bailed out. The injustice isn’t that AIG and Goldman Sachs are passing out bonuses. The injustice is that they were allowed to survive. Privatizing the profits of the banks when times are good and socializing losses when they make mistakes takes the worst aspects of two incompatible economic systems. We should be more angry at Washington than Wall Street. In closing keep in mind that while the banks have a big responsibility for the economic crisis but they are not the sole cause, but they are the biggest scapegoats.

• Home Buyers
Home buyers bear responsibility for their loan problems but they are usually painted as mere victims and not active participants in the bubble. They along with the social justice crowd and politicians are getting a pass on their role in the housing crisis. I’ll expand on the responsibility of home buyers in the next chapter.

When you bought your brand new home you were giddy with excitement. The housing market was booming and you wanted to get in it before you were left behind. The biggest fear was that if you didn’t act quickly then you would be priced out of the housing market and would never be a homeowner. You winced as you signed the loan docs knowing that you were stretching your budget but housing prices were going up and the economy was humming along. We all believed our jobs were secure and our futures bright.

Boy were we all wrong. The red hot housing market of the 2KOs and the overall economy were based on a lefty belief that homeownership is a right for everyone. The leftists misconstrued what were in reality commonsense loan underwriting standards and insisted they were in some way unfair to certain groups. An erroneous belief pushed by various social justice groups such as Acorn and NACA that the State and Federal Governments fell for. This set of lies shaped monetary and lending policy for the entire nation. The victims of these lies are the middle class as well as the lower income people they were trying to help. The real villains are not just the banks or Wall Street but the social justice crowd that swept our entire economy into a tailspin and then brought the very people that created the problem into political power as the providers of hope and change. The banks and Wall Street just make very convenient and believable scapegoats. They provide political cover for the true creators of our economic problems.

The root of our present day housing crisis begins with the Community Reinvestment Act of 1977. This act, signed by President Jimmy Carter was designed to prevent the practice of redlining and encourage homeownership among the poor. A very noble sounding goal but the law of unintended consequences is always ignored by the righteous. This natural law is the basis of the saying” The road to hell is paved in good intentions”. When combined with a tax code that encourages housing overconsumption, the federal loan guarantees through Freddie Mac, Fannie Mae and other agencies and a relentless push by the social justice crowd to push “affordable housing” at all costs we ended up with a whole raft of loans that made no sense to anyone without a social engineering agenda.

This political push for “affordable housing” had the exact opposite effect. This push for affordable housing is why traditional middle class buyers who represent a good risk for the banks overpaid for housing. It forced housing prices to skyrocket faster than any time in our nation’s history. As the pool of available buyers was increased by lax lending standards competition became fiercer. Prices were pushed ever higher. The loan products were redesigned to make it even easier for anyone with a pulse to overextend themselves on a mortgage. A feedback loop was created that caused a housing hysteria to form. It gathered steam because of a disconnect in the banking world created by allowing the securitization of mortgages.

Traditionally a mortgage was held by the bank that issued it for 30 years. This forced the banks to consider each application very carefully. They didn’t want to lend their money long term if the applicant represented a high risk. This changed when the Feds relaxed banking standards and allowed the over securitization of mortgages. The banks realized that they could take the pools of high risk subprime loans that were created not by common sense standards but by the new standards of politically correct lending and sell them to others. They could make money short term and push the risk onto others. This satisfied everyone at the time…well everyone but the middle class buyers. The banks were under intense pressure to increase the traditional homeownership rate. Traditionally that rate has been about 64%. This political push did increase the homeownership rate to a high of 69% in 2004 but at the cost of near economic collapse. That rate will plummet as this housing crisis unfolds.

What happened next was predictable. The number of subprime defaults went through the roof. What was not easily predictable was the way that these defaults would ripple through Wall Street and cause a near collapse of our financial system and a crippling of our economy on Main Street. The causes of the subprime meltdown were the loans themselves. The cause of the impending middle class wave of foreclosures is largely underemployment and unemployment of the middle class due to the economic turmoil. The middle class overpaid for their homes due to the subprime competition and now they are being forced into default due to the economic effect of the subprime defaults. The middle class got trapped twice by the same subprime lending.

To add insult to injury, when a poor family is facing foreclosure they have a plethora of free legal resources to turn to. The middle class are often on their own when it comes time to sort through their options. These free legal resources are paid for by tax dollars and supplied by the same non profits that pushed their political agenda and created the political atmosphere that caused the foreclosure problem. These groups now hold themselves out to be the solution to those problems they created and the savior of the very people they hurt the worst, the poor. These advocates for the poor trapped the middle class twice and now they don’t stand ready to give assistance. That’s why I am writing this book, to give the middle class homeowner an easy place to find their options and a plan to make the best of a bad situation.

I have clients who have been in their homes for over two years without paying their mortgage and the lender hasn’t even filed a NOD (notice of default) the first step in the foreclosure process. These clients are working with their lender to try to save their home. In the meantime they are banking all the funds they can while living rent free so that if they don’t save their home they will have the financial means to get on with their lives. Even if you think that you can’t afford to save your home you should at least go through the action plans I will present later on. Let your lender make the final determination. Work with them and give yourself the luxury of time and money. Those two commodities are vital to everyone in your position.

The political landscape is changing on a weekly basis. The available options to homeowners in distress are only expanding. The longer you can delay the foreclosure process the more options will be available to you. Options that don’t even exist today may appear that you will be able to take advantage of. Remember that the banks don’t want foreclosure any more than you do. They know that foreclosure is the worst option for them too. They want to work with you. They want to save your home if at all possible. They would rather do a loan modification or a short sale if at all possible. It may not seem that way when you are going through the often frustrating and infuriating process of negotiating with your lender but trust me they want to work with you.

But what will the neighbors think? Don’t worry about what the neighbors think. As an old saying goes, “It’s none of your business what others think about you” or “If you are worried about what others think about you, don’t. Others are too busy thinking about themselves to think about you”. I have a client who is going through foreclosure and he was embarrassed because he lives in Blackhawk, an upscale development. He didn’t want the neighbors to think he was some kind of deadbeat. I printed out a lengthy list of homes in his area that were further along in the foreclosure process than he was. He was shocked. Like most people he did not fully realize the magnitude of the housing crisis. If you find yourself owing more on your home than it is currently worth and/or are having trouble making your payments you are in good company. I guarantee that many of your neighbors are in the same boat as you are. No one will think badly about you because you find yourself in this situation. Most people know that but for the grace of God they too would be in similar circumstances.

I know that you are in a tough situation right now but take a moment to put your overall situation into the proper perspective. Picture yourself a few years in the future. You worked hard to save your home. Maybe you were successful. Maybe you were able to do a short sale. Maybe you lost your home to foreclosure. No matter what happened in the end you took control of the situation. You bought yourself time and made the best of a bad situation. The foreclosure is now just a fading distant memory. You’ve picked up the pieces and are now living your life. Remember what Mark Twain once said “I have been through some terrible things in my life, some of which actually happened”. Please remember that this too shall pass.

This previous story about Drunk Jim illustrates the worst thing that can happen if you do absolutely nothing to help yourself. The only thing the bank can do to you is evict you from your home and place a negative report on your credit. That’s it. That’s the worst of it. Hell they can’t even evict you as long as you leave before the sheriff shows up. As the title of this chapter says, the bank can’t shoot your dog. The fear of the unknown is what paralyzes most people. People tend to make a bad situation worse in their imagination. The fear of foreclosure is usually worse than the actual event. I have worked with many clients who have told me that they actually felt relief when the foreclosure was complete. They report to me that the foreclosure was actually a fresh new beginning for them, not a tragic end.

Let me paint a different worst case ending for you. In your case the absolute worst thing that will happen is you will fight to keep your house. You will try to modify your loan, get a forbearance, a reinstatement, file bankruptcy, do a short sale, whatever is most appropriate for your situation. You’ll follow my techniques to exercise all of your options. If none of these attempts pan out you will lose your home to foreclosure. But you are smarter than Drunk Jim. You will start talking to your lender as early in the process as possible and sort through and try all of your options. You will buy the most valuable commodity: time.

The worst thing that will happen to you is you will live in your home rent free for a period of time, you will save your money, identify how you got into this financial mess and take steps to prevent it from happening again. You may lose your home to foreclosure but you’ll exercise all your options even then. You may decide to take the cash for keys offer from the bank or you may decide to stay in the house right up to the eviction. As long as you move out at least a day before the sheriff shows up you will avoid the fate of Drunk Jim. The important thing is to take control TODAY and delay the process. Your options will dwindle as time passes.

When you are facing problems with your home loan and foreclosure is starting to look like a real possibility, the enemy isn’t the bank. It’s your emotional state. If you are like most people you are filled with a swirl of emotions and bewildered about how you allowed your mortgage to get so out of control. You can’t believe how quickly the economy, the housing market and your finances took a turn for the worse. You may even be frozen in place and incapable of sorting through your options in any meaningful way. You may feel overwhelmed by fear, anger, guilt and an overriding sense of helplessness.

Many people, especially men like to get wrapped up in anger. Anger is convenient emotional cover for all the other emotions you are feeling. Many people find it inappropriate or embarrassing to express any emotion but anger. People like to find refuge in the dead end of anger. Anger is manly while other emotions make you feel weak. Anger lets you off the hook. It externalizes the causes and makes you the victim not the creator of your problems. Most people in your situation ride the futility of their emotions right to the courthouse steps. By doing this they lose control over the entire process and become just another foreclosure statistic. You are reading this book so you are probably in the small minority of people who are willing to take a good hard look at your situation and take the appropriate steps to minimize the potential downside of the foreclosure process.

If you feel emotionally frozen we need to talk you off that ledge first so that you can effectively take control of your mortgage problems. The best way to do that is to take a look at the worst case scenario. If you accept the worst that could possibly happen, you will see that it really isn’t as bad as your imagination makes it. It is the unexamined fear that prevents you from acting effectively. Let’s take a look at the worst thing that can happen to you. By doing this you take away its ability to stop you from acting. You’ll also see that the absolute worst scenario is easily avoided if you can get past the emotional barriers.

In all my years of selling foreclosures for banks I have only witnessed one case where the worst case scenario actually came true. This is the story of Drunk Jim. The neighbors called him Drunk Jim because there were two neighbors named Jim on this close knit street. This particular Jim was always drunk so the neighbors got in the habit of referring to him as Drunk Jim to avoid any confusion over which neighbor Jim they were referring to. Don’t get me wrong, all the neighbors liked Drunk Jim and he was an important part of the neighborhood. He was the type of person who would do anything to help a neighbor out…if he was sober at the time. Drunk Jim was a happy drunk. He was never violent or loud. He just wanted to be left alone to well, drink.

The first time I met Drunk Jim was after he lost his home on the court house steps to foreclosure. The bank took the home back and they assigned the listing to me. I had to do an occupancy check on the property to see if anyone was living there. I met with Drunk Jim and explained the situation. I told him that the bank now owned his home and they were going to offer him a cash for keys settlement. I told him that if he didn’t accept the cash for keys the bank would start eviction proceedings. I explained all of his options and told him where he could get free legal assistance. I explained that he had at least 3 months before the eviction would be enforced by the sheriff’s office. I told him that he could drag out the eviction proceedings by getting the free legal assistance. I told him about some local charities that would be able to help him to find a place to live. Drunk Jim’s only response was “but this is my home and I’ve got nowhere else to go”. I explained to Drunk Jim that if he did nothing the day would come when the sheriff’s deputies would show up to enforce the eviction. They would allow him 5 minutes to gather some belongings and would then escort him from the house. I tried to convince him to do something to avoid this unpleasant scenario but he was too emotionally frozen to do anything.

As the months passed I kept talking to Drunk Jim and tried to help him help himself but he refused to do anything but wait. Eviction day finally came and Drunk Jim was still in the house. The sheriff’s deputies escorted him from the house and he drove off abandoning all of his things. All of his personal property then became the property of the bank. I tracked down Drunk Jim’s sister a few days later and she rescued her brother’s personal effects. The rest of his things were unceremoniously hauled off by a trashout company. This is the absolute worst case scenario but you can see how easily avoidable this is. The first rule of foreclosures is not to be there when the sheriff shows up.

The next wave of foreclosures is poised to hit.

The best way to ride this wave is to become an REO agent.

The question every agent has is How Do I Get REO Listings?

Here is an article from DSNews.com.

I’ve reprinted the highligts of it below

Industry experts tell us that over 7 million homes will be sold at the courthouse steps over the next year.

Ths number – which is about 5.5 times larger than 2005’s rate of foreclosures – a “huge shadow inventory” that threatens to further erode the national housing market that had shown signs of stabilizing.

Loan modifications have delayed foreclosures while actually worsening many homeowners’ positions.

There’s going to be a flood REO’s listed for sale soon,” John Burns, a real-estate pundit based in California, told the Wall Street Journal. He thinks prices will drop at least six percent this year. Analysts at Amherst predict an 8 percent drop, while a report by Barclay’s predicted a 13 percent drop, saying the worst of the housing crash is “decidedly underway,” with increased foreclosures sucking “the strength of the recovery in all but the best of scenarios.”

One cause of the worsening problems is unintended consequences from “well-meaning efforts to keep families in their houses.” Foreclosures have been stopped by state moratoriums, as well as by banks and servicers who are using the time to find out if troubled borrowers are eligible for loan mods.

“We’re going to have a big jump in foreclosures as people go through the loan mod process but discover they can’t qualify for mods, a Bank of America Corp. spokeswoman told the Journal, adding that government pressure to stop foreclosures had reduced their foreclosure sales to “abnormally low” levels.

Evidence is mounting that even when modifications are successfully written, the chances of a borrower defaulting again, and entering the foreclosure process again is very high. That’s because even a big reduction in interest and/or principal won’t save a homeowner who’s underwater. Many of these borrowers will default later, if they stay in a negative equity position,” they added.

Banks, too, are part of the shadow inventory problem. Afraid of the added costs of taking back foreclosure properties and selling them, many banks have simply decided not to foreclose on borrowers. A report by LPS Applied Statistics indicates that banks haven’t even started the foreclosure process on 1.2 mil homes that are 90 days+ past due. In July, 217,000 mortgages that were a year behind on payments hadn’t even received an Notice Of Default– a number that’s doubled since last year.

Lenders have also lowered the opening bids on the courthouse steps. That’s letting outside investors buy some homes at a deep discount: ForeclosureRadar.com says that 19 percent of homes sold in August in California trustee sales went to investors. Thats a 500 percent increase since last year.

What this all means is that the shadow inventory will soon change the economy’s recent sunny outlook.

“The favorable seasonals will go away over the next few months, and the truth of a 7 million-unit housing overhang is likely to set in,” they said.

Here is the first chapter of my new book; The Code Of An REO Warrior. Enjoy!

It’s no secret that real estate has the lowest barrier to entry of any of the professional white collar jobs. Here in California all you have to do is pay the license fees, fill out the application, take some online classes, pass a test and presto, a brand new real estate agent is minted. The public perception of a real estate agent is a life of easy riches with little or no work. When you combine these two things what you end up with is a lot of real estate agents. A lot of agents all fighting for leads, clients and transactions. In California we have over 532,000 licensed real estate agents. That’s one real estate agent for every fifty adults. A full two percent of the working population is licensed.
This low barrier means an almost inexhaustible supply of new recruits for the real estate brokers. The traditional business model of real estate is what I like to call “Churn em and Burn em”. It’s not good for agents, clients or brokers but it’s the way things are done simply because this is the way it’s always been done. Here is how it works.

THE TRADITIONAL BUSINESS MODEL OF REAL ESTATE IS
“CHURN EM AND BURN EM”

HotShot Realty is hiring this month. What you should notice is that HotShot Realty is hiring every month no matter what the housing market conditions are like. They hire a few agents every month, give them little or no training and then let them loose. They tell these agents to contact everyone they’ve ever met in their life, commonly referred to as their sphere of influence, and ask them point blank if they know of anyone who may be interested in buying or selling a house. This puts their friends in a bit of a bind. Of course the friends of this newly minted agent want to see their amigo be successful. They just don’t want to entrust the single biggest financial transaction they will ever make in their lives to someone who just recently skipped over that famously low barrier to entry. Occasionally a few of these newly recruited agents will convince a few members of their sphere of influence to send them their business. Pretty soon the new agents run out of friends and then they get to experience the absolute soul crushing rejection of cold calling and door knocking. It’s not a pretty time in any real estate agents career.

THE BROKERS CHURN AND BURN THE AGENTS
AND THEN ENCOURAGE THE AGENTS TO
CHURN AND BURN THEIR FRIENDS AND FAMILIES

The results are predictable. After a few months of little or no income, all retirement money is sucked out of the newbie agent’s savings for marketing costs, desk fees, technology fees, MLS fees and the simple cost of being alive in the twenty first century. The vast majority of agents crash and burn and are forced out of real estate within the first year. Most of the agents who survive the first year go down in flames by year five. The brokers know these statistics. That’s why they’re always hiring. It doesn’t cost them anything to hire a new agent. That’s what those various fees are for; to cover the broker’s costs of hiring. The brokers churn and burn the agents and then encourage the agents to churn and burn their friends and families.
A slim minority of new agents do survive this system and they become the agents that handle the vast majority of real estate transactions. The famous Pareto Principle should tell us that eighty percent of the real estate transactions are handled by only twenty percent of the agents but this is not the case. Over ninety five percent of all real estate transactions are handled by less than five percent of all agents. The average real estate agent does zero to two transactions per year. This means that any agent who closes three deals a year or more is in the top percentile of agents. That’s great for your ego if you do three deals as a new agent but good luck eating that shiny Magnesium Commodore’s Club Award you get for real estate excellence from your broker.
Are you ready for a career in real estate after hearing all that? Good. I knew what the odds were when I got into real estate. I believe that’s one of the reasons for my success. The agents who make it are the agents who come into this arena with no illusions. If you want to get rich quick in real estate with no money down and no work required you should put this book down and go buy lottery tickets. There are plenty of books that promise easy real estate riches. I promise genuine real estate riches. My secrets may be simple but they’re never easy.

YOU CAN HAVE EVERYTHING YOU WANT IN LIFE.
YOU JUST HAVE TO BE WILLING TO
PAY THE PRICE UPFRONT FOR SUCCESS

You can have everything you want in life. You just have to be willing to pay the price upfront for success. The price is not as high as you think. This book will tell you what you need to know to succeed as an REO agent. While this book will give you some specific actions you need to take, the most important thing you should take from this book is the mindset that is required to succeed as an REO agent. Your attitude towards your work, asset managers, tenants, former owners, your team and yourself is the crucial component that only you can change.
Systems are great. I love systems. I’ve bought and used real estate systems from others that greatly impacted my success. I’ve created my own systems. The dirty little secret of all those systems is that without the right mindset, the right code, you will be ineffective in implementing those systems. This is why this book is the first and most important part of the BPO’s 4 REO’s system I sell. You can have success in this field without my systems but you won’t have any success without the right mental attitude.
Blood Sports are won by the warrior who is prepared and ready to do whatever is needed to win. Warriors operate with a code. A code that guides and informs them as they navigate their way through the day to day ordeals every one faces while striving to win. Real estate is no different.

THE REO FIELD IS A VERY UNFORGIVING ONE

Brian Tracy teaches that “Success leaves tracks.” What he means is if you want to obtain an outcome then study what a successful person in that field did. If you find out what they did to achieve success then do exactly what they did, the outcome is all but a foregone conclusion. This is how I learned the secrets that I’m revealing in this book. I took a look at the agents that were getting the REO listings and I found out what they did to get them. I also learned from and benefited from their mistakes. Learning from the mistakes of others is always the best route. You get the benefit of their errors without the stain on your own reputation.
The REO field is a very unforgiving one. You need to know what the pitfalls are so you can avoid them. When you are just starting out as an REO agent it only takes one or two mistakes to kill your career. Asset managers are like real estate brokers, they also have an almost inexhaustible supply of new real estate agents to give business to. If you don’t give the asset managers the service they require they won’t complain more than once or twice to you. They will simply find another agent to handle their work. They’ll complain about you to the agent they reassign all your listings to. (This is one of the best ways to learn from other agents mistakes.)
Asset managers need agents who exhibit good judgment, possess a sense of urgency, know how to value homes, have a sound marketing ability, and a sense of their fiduciary duties.
Asset managers don’t have the time to constantly hire and train new agents. They want to find one or two good agents in each local area and use those dependable agents for all their transactions. This is why a very slim minority of agents have the bulk of all the REO listings. Those successful REO agents have proven themselves capable and dependable to the asset managers. This book will go a long way to ensure that you are the type of agent that asset managers depend on.

SUCCESS IS YOURS
ALL YOU HAVE TO DO IS TAKE IT

The bright side of this is the knowledge that most people are not willing to do what is needed to succeed. Jerry Rice of football’s Forty Niner’s once said “Today I will do what others won’t so tomorrow I can accomplish what others can’t.” The average agent won’t do the things that I suggest in this book. They don’t want to do the work upfront for success tomorrow. You bought this book so you’ve taken the crucial first step towards success as an REO agent. If you consistently do what I recommend with the heart of a warrior then you too will be successful as an REO agent. I wish you luck. Success is yours. All you have to do is take it.

There is an interesting article from The LA times blog. They say that the banks are not foreclosing on homes in CA.

Click here to read it

I know the banks are holding off on trustee sales in CA. My own experience tells me that. Personally I think that the banks are in negotiations with hedge funds, private equity firms, and other investors and are trying to do bulk portfolio sales. Wells Fargo just announced a deal to sell $600,000,000 in sub prime loans to Irvine CA based Arch Capital Group. I think that these types of deals are being worked out as we speak.

I don’t know what is happening for sure but something is shifting in the REO world. Spidey senses are tingling.

When I decided to make the leap into the REO business model I studied it before I made the jump. The first thing I noticed was that my local market was dominated by a handful of big players. It seemed like 6 agents had about 80% of the bank foreclosure listings. My first reaction was pure jealousy but I immediately put the kibosh on that unproductive emotion and focused on what they were doing.

Success Leaves Tracks.

I like this guy. He seems like a cool wealthy uncle who is always good for some “walking around money” and some fatherly advice.

The concept is if you study what a hugely successful person did and just do what they did, your success is all but assured. I decided to look at what these local REO Kings and Queens were doing and figure out how I could duplicate their success. I asked myself questions like “How did they form relationships with the banks?” Why did the banks prefer to send the bulk of listings to just a few players when there are literally thousands of agents screaming for the business?” “How do I find out the information?”

The last question was the hardest one of all. Finding the information was the biggest obstacle. Call up your local REO King and ask him what you need to know in order to duplicate his success. Go ahead. Give it a whirl. Yea they’ll spill their guts to you no problem. The wall of secrecy around how to get REO listings is practically impenetrable.

The first thing I noticed was that the successful agents used leverage to their benefit. One of the problems with traditional real estate is that people only move about every 5 years. You work hard to develop a relationship and then you only get one deal from each relationship. When you cultivate relationships with the banks and in particular the asset managers you are able to leverage each relationship into multiple deals.

This heavy volume is both a blessing but also the curse that kills the careers of most new REO agents. You MUST leverage BPO’s, systems and people to deal with the heavier volume of work in order to manage the workflow. If you don’t use the leverage of others you will shoot yourself in the foot by dropping balls. This is why the asset managers prefer to work with a handful of agents. Your local REO king uses leverage to make sure that the work gets done with little or no dropped balls.

The REO business model is the most efficient business model in real estate. It lends itself to systems. While the relationships are important, they are nurtured by different criteria than traditional real estate. Asset managers don’t care about what kind of car you drive, where you live, how you look, or how smooth talking you are. Asset managers want predictable results. Results that can only be duplicated on each listing if you are leveraging systems and people. By giving predictable reliable results you leverage your relationships with the asset managers.

Asset managers know competence when they see it. They reward it. They chase after it. They are loyal to it. The competence of systems will make your asset managers look good to their superiors. Making your asset manager look good is your only goal. Take care of that and everything else will fall into place.

My decision to become an REO agent (listing and selling bank foreclosure properties) was easy. My choice was to either sell bank owned homes or lose my own home in a trustee sale. I was relatively new to real estate when the market crashed. I didn’t have any responsibility for the housing boom and didn’t profit from it. I was the one telling people about the hysteria around the Dutch Tulip Craze back in the 1600’s . (Click on the link to read about it. It’s amazing how little humans have changed since then.)

It’s hard to be successful when you’re telling your clients that the sky is falling. My clients were uncomfortable hearing the truth. Clients used to tell me about the wonderful loans they were getting. They would tell me about super low interest rates, 103% loan to values, and no need to prove anything to the lender but the ability to fog a mirror. I would tell clients about teaser rates, negative amortization and housing cycles but they didn’t want to hear it.

I would literally beg my clients to read the loan docs before they signed the papers. They never did read the damn thing and the banks knew they wouldn’t. The banks figured out that the spoken word was more powerful than the written document. They could tell home buyers one thing and have them sign something else. The spoken word had impact but left no lasting evidence. I would explain the “Greater Fool” theory and that someone was going to be that greater fool and was going to be left holding the bag. Little did I realize that we all were the greater fools and the US economy would be the one left holding the bag.

When the market started to shift in 2005 I realized what we were up against. I was out of money and knew that if I didn’t jump on the REO tsunami and ride the wave I was going to lose my own house. In December of 2007 I was assigned 6 REO listings in one week. 4 of those 6 homes were owned by real estate agents or loan officers. Thats the day I realized how lucky I was to be the agent selling homes and not an agent losing their home. While I always feel bad about someone losing their home I would feel even worse if I lost my own home because I failed to develop the relationships with the asset management companies. My family was too important to me to let that happen.

Looking back I know I made the right decision. It’s been a good ride so far. If I decided to stay out of the REO market I wouldn’t have saved anyone’s home including mine. Working foreclosures also gave me an opportunity to do a gut check of my own value system. I’ll talk later about selling foreclosures with integrity and honesty. I know some segments of the world would say that’s impossible but not only is it possible, it’s always the best way for everyone involved.

(Please, if you are one of those people who want to criticize what I do and not contribute to my growth then just walk away from this blog now and no one will get hurt)

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