Federal Deposit Insurance Corporation (FDIC) and the Department of Housing and Urban Development (HUD) have issued statements regarding the need for alternative disposition strategies for distressed assets such as foreclosed homes and other non-performing notes.
HUD is acting on behalf of the FHFA, Fannie Mae and Freddie Mac.

Both entities have cited that placing these properties on the market in a traditional manner (as individual listings) will further clog the market and negatively impact home values and neighborhood stabilization. With this in mind, HUD and the FDIC are looking at strategies to efficiently liquidate existing, as well as “shadow inventory,” in bulk to investors who have the financial wherewithal to make these large purchases.

How do bulk sales work?

Bulk sales can be categorized in two basic categories – Real Estate Owned (REO) and non-performing notes (NPNs). REO is the industry term for foreclosed properties that are typically owned by the “bank.” NPNs are just that – loans against a property that are no longer current or in “default.” There are different disposition strategies for each of these types of pools. In both cases, the bulk purchase typically involves a fairly steep discount off of the market value of the property or unpaid principal balance of the loan.

REO – Generally an investor who purchases REO pools can either sell the properties individually for a profit or keep them as rentals. HUD’s objectives include both strategies. One of the challenges for investors that purchase REOs is securing and preserving the properties’ conditions. Average daily carrying costs are the key metrics investors must consider when purchasing pools to determine their return on investment.

NPN – Non-performing notes are an entirely different animal. There are additional opportunities, as well as challenges, for investors who handle NPN pools. Since the investor owns the “paper” and not the property, there is no immediate need for securing and preserving the property because it is still owned by the homeowner. By purchasing these notes at steep discounts (as much as 40 percent or more less than market value) the investor may approach the owner and offer a true modification of the loan, including principal reduction. For those owners who decline such an offer, the investor will need to go through the foreclosure or deed-in-lieu process, which can be both time consuming and costly.

Understanding both scenarios is requisite for any investor who wishes to delve in this arena. Profits can be quite significant where a well thought out and executed strategy is employed.

Where can I find out more about investing in bulk sales?

Active Data Technologies Inc., the parent company of Foreclosure.com, operates several companies that deal in the distressed property arena. In fact, Foreclosure.com (www.foreclosure.com) is a compendium of real-time property data that enables consumers to search its vast database for preforeclosure and REO properties, among many others.

QuickSale.com (www.quicksale.com/loanpools.html) is another one of Active Data Technologies Inc.’s brands. It is on this website where loan and REO pools are placed on the open market for investors to review and purchase. When it comes to getting great deals, you need to be registered as an approved buyer before making offers to purchase.

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