What Makes a Bad Deal for Banks a Good Deal for You: Horrible Things You'll Want a Lender to Know

To accomplish this feat, all you have to do is prove to a bank that a distressed or pre-foreclosed property is more trouble than it’s worth. There are some specific things you’ll want to know about that property ahead of time, both so that you can make a decision about its value to you, and so you can effectively demonstrate to the bank that you are doing them a big favor.

So here are some things to look for that signal cash to you, but trials and tribulations to a lender. Having a good knowledge of these points before you enter into a conversation with a lender will not only make your life easier and your deal run more smoothly, it will help the lender see things your way from the start.

1. You need a BPO. You wouldn’t invest in stocks blindly, and you don’t want to invest in real estate blindly either. You’ll want a Broker Price Opinion (BPO) to determine not only how much the house is worth now, but also to help you figure out (for your reference) how much it could be worth. A bank is not so interested in how much a house could potentially go for – what they’ll see is that they’re only going to be able to get $70,000, for example, back on $120,000 worth of debt. Remember, banks want money, not land.
   
   If that house appraises for $70,000 now, could be worth $110,000, and is located in a neighborhood of $115,000 houses – that’s good news for YOU – you know how to sell that property and make everyone happy. But the bank sees bad news: a major loss of time for an uncertain amount of money that they won’t get until they convince someone to buy.

2. Provide specifics. Okay, go ahead – let your inner pessimist out. If that house needs a new coat of paint, the roof is falling in, the current owner has let the lawn overgrow the first floor and it’ll never be the same, point that out! Furthermore, it can be to your advantage to provide documentation that the current owner will never get out the hole they’re in – EVER. So the bank may as well recoup what it can and hand that time bomb over to YOU! Aren’t you helpful? And these are all things you need to be aware of anyway so that you can sell that “bomb” as the solid piece of investment property you know it is.

3. Get some bids. In addition to providing your take on the state of the property, solicit bids from several local contractors. Most companies will do this free of charge. These bids are further solid evidence that the bank stands to lose big if they proceed with the foreclosure. They’re going to have to put even more money in before they get a dime they’re owed! (And again, you need this information anyway, so you get double value)

4. Welcome to the neighborhood. It may be worth your while to cultivate at least a surface knowledge of the local and national economies. You already know that for you, the end of the real estate boom might not be such a bad thing. But for a bank – it’s terrible. Think of all the money a lender stands to lose if they are trying to sell houses in a difficult market. They’ve got nothing but time – and that’s the last thing they want between them and their money!
   
   If you can show that the market is not on the bank’s side, you’ll make a much more convincing case for taking (part of) the money they’re owed and running with it. You can even reference news items if you are so inclined. Again, remember, this is a bad deal for the bank, not for you. You’re buying this house WAY UNDER VALUE, and that means even if you sell it way under, you’re still turning a profit.

5. Bring a contract. Lenders will always want to see a written contract between you and the seller to verify that you two aren’t pulling a fast one. There are many different ways to write and prepare these contracts, so you’ll want to find a good model that protects YOU and stick with that one. By bringing your contract with you from the start, you make it more likely that the final document will be based on your preferred model.

Sadly, (but not for you!) foreclosure is a fact of life. There will always be people who cannot afford their property, and there will always be lenders who lose money on those properties. So you may as well help both parties make the best of it, and in the end, you’ll get the very best end of the bargain!

Our names are Neal and Cory Barnett and we haven’t always made a lot of money. We are two brothers who came from a large family raised in a small town in beautiful North Carolina. We came from a family of factory workers and farmers because that was about all there was to choose from that far out in the country. TO find out more go to www.discovershortsales.com