Banks Selling Real Estate Investors their Default Properties

By: Judson Voss

You may think that negotiating with banks in order to get them to give you a discount on their property is practically impossible! It is possible and real estate investment deals go through with the bank every day. Here's why.

Why You can Get Discounts on Default Properties
Banks are rated in their ability to work out deals with homeowner in default. That means they are rated for how much cash they hold in reserve to cover each mortgage should it default and how well they work with the homeowner in order to keep a property from foreclosing. Some banks may hold as much as 8 times the default mortgage in cash reserve, which for a standard $100,000 mortgage is as much as $800,000. They are required by law to cover that mortgage in case it goes sour. The banks can't use this money, invest this money and they certainly can't use the property. It just sits there tied up for as long as that mortgage is in their books.

So a bank will accept a short sale on a property or a mortgage note purchase primarily because of the reserves they are required to set aside. They want that money freed up so they can invest that reserve money and make profits.

Your best deals come from the bank right before the end of their fiscal year or right before their auditing.

How eager the Banks are to get rid of Default Properties!
A particular real estate investor was interested in a small home in default. The investor began discussions with the bank that held the homeowner's mortgage to see if they could negotiate a deal. He was holding out for a sale price of $37,500 on this property and he wanted to make the sale as a note purchase. The bank was being difficult. They didn't want to sell the property that low and they wanted a short sale deal on this property. The deal didn't work out all three parties went their separate ways.

About 6 months later the bank calls the real estate investor back up to see if he is still interested in buying the property. They were willing to let him have his previous price of $37,500 and let him have the property mortgage through a note purchase. In fact the bank needed to do a note purchase.

They had foreclosed on the homeowner during those 6 months, but neglected to show up at the sheriff's sale. This naturally messed up their foreclosure.

The only way they could sell the property was by a note purchase. There may have been a lot of investors interested in this property, but because the investor had been holding out for a note purchase six months prior the bank remembered him and called him up to see if he was still interested in investing that property. Even better the investor saw what a pinch the bank was in and managed to negotiate an even lower sale price on the note purchase of $30,000.

Banks are not in the real estate business, they are in the money lending business. The only use foreclosure as a last resort to recover some of their money. This process takes a long time though and it's messy. Banks are much more willing to sell the property, work with the homeowner or take discounted short sales and note purchase deals to recover their loan.

Property Tips
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Property Tips
 



Share this article :
Click to see more related articles