REO Properties Flood U.S. Market

At the end of 2006 there were about 100,000 bank-owned properties for sale in the United States. Today, thanks to the ongoing tsunami of new foreclosures there are over 700,000, and that number is climbing.

What this means is that, at the same time that most American jobs are disappearing or shrinking down to part-time status, people who workd as REO agents (realtors who handle only foreclosed properties) are making a killing. At least, some of them are.

A seminar held in Palm Desert, California for 3,000 REO agents recently brought in more drink and dinner business for the hotel hosting the event than New Year's Eve.

The bad news is, it's not as easy as you might think to push REO property. Location is everything, and you have to be really fast. Unlike, traditional real estate sales, which involves trotting potential buyers around to home after home after home, REO sales are mostly done on paper or electronically. Buyers expect a mess and they usually are no disappointed.

REO agents also face issues other realtors don't: pools filled with water the color and consistency of pea soup, tenants and borrowers who won't vacate the premises (prompting bank-financed 'Cash For Keys' offers in which the REO agent pays the squatters if they agree to vacate within 30 days), sinks full of excrement and spoiled food, broken windows and drug paraphenalia on trashed carpeting, the random threat of physical violence or shooting, and mortgage lenders who won't spend $1500 to clean out a foreclosed property and subsequently watch its value fall by $40,000 or more over the following months.

This HUD repo in Cassopolis MI (MLS 2847483) is listed at $58,000.

A recent New Yorker article tracks the adventures of Los Angeles REO agent Leo Nordine, who is currently making $1.5 million a year pushing trashed properties within the LA city limits. Because Nordine can usually unload foreclosed properties in under 30 days, he has become the realtor of choice for many big mortgage lenders, but his life is not for everyone. Nordine gets up at 4:30 in the morning most days to go surfing before starting his work day, and he is still awake most nights at 2:30 PM doing REO paperwork, even though his wife helps him out with that, all day, every day.

Still, $1.5 million is not a bad salary no matter how hard you have to work for it.

Despite the enthusiasm in some quarters, there is something disheartening about this boom. First, the subprime mortgage lenders had their day, with kids who probably couldn't have held down a job a McDonald's suddenly making big money selling terrible loans to people who shouldn't have ever taken them out. Then, the investment bankers had their moment in the sun, with kids fresh out of college making millions their first year at work rolling these bad loans into bad investment vehicles and pushing them like they were written on gold.

Now we have the Dawn of the Living Dead REO Agent: The heydey of folks who make millions off the carcasses left over from the other folks who made their own millions a couple of years back.

What about the rest of us?

Don't ask.

Property investment advice is easy to come by these days but hard to implement. You can find bank-owned property for sale by searching the REO listings of major banks. Once you buy such a property however, you're on your own.

Right now, most of the homes selling are REO homes. If you plan to live in your purchase, this might be a time to get in. HUD repo's can be good deals if you are able to actually occupy the property for awhile. If you plan to flip your purchase and re-sell it however, this might be a better time to consider becoming and REO agent.