A number of our readers from the brokerage arm of real estate have asked how they might become involved in marketing bank owned real estate (REOs), that is, properties seized by the banks for non-payment of the mortgage.

We have spent a lot of time researching this and we have to say that this is one of the murkiest subjects we have ever encountered.  Be prepared for a lot more generalities than specifics.  We are also waiting for answers to questions we sent to some lenders, loan servicers, and government agencies so this will be the first of several articles and perhaps some ongoing brief updates.  We also apologize if this is not the most organized series of articles we have published; it is not a situation that lends itself to drafting a clear and concise outline, we are just going to dive in.  Much of the information regarding contacts is also applicable for appraisers who wish to build their business in the foreclosure area and real estate agents might also pick up work doing broker price opinions or BPOs on foreclosed property.

It has to be pointed out that foreclosures are always with us and while the problems are now acute, those who are profiting from the situation have been in place for a long time.  The bad times are good times for them, but they have honed their contacts, training, and procedures during periods when most real estate professionals couldn't be bothered. 

If, as a real estate agent, you are seeking to show REO listings to your customers, there are a few hoops you will have to jump through but almost anyone can do it.  If you are looking to list properties then it is a lot more difficult.  If the properties you are interested in are in the REO inventory of a government agency (or Freddie Mac and Fannie Mae) procedures are a lot more clear-cut than in the private sector.  The difficult part is finding the right office to talk with.

The Department of Housing and Urban Development never really sees a time when they are not in the REO business so it is not surprising that they are pretty well organized.

The Federal Housing Administration (FHA) is the department within HUD that insures individual home mortgages.  When a homeowner defaults on an FHA mortgage the bank forecloses, is reimbursed for the loan and the foreclosure expenses, and signs the home's title over to FHA.  Therefore, all FHA REO properties are one to four family homes; no commercial property.

Many HUD homes are listed by local Multiple Listing Services and a complete national list on a state-by-state basis can be found on its home page on the Internet (www.hud.gov/homes.)

HUD homes are managed and marketed by Management and Marketing Contractors that handle whole states or multiple states.  These contractors are selected through standard federal procurement procedures which involve competitive responses to requests for proposals.  These are not contracts suitable for individual real estate offices.  Hooks Van Holm, for example, is the contractor for Alabama, Delaware, Mississippi, and Pennsylvania.  PEMCO, Ltd. Handles California, Georgia, Hawaii, Guam and the Marianas Islands.  These management companies can be accessed by selecting a state on www.hud.gov/offices/hsg/sfh/reo/mm/mminfo.cfm.

In order to show or advertise a HUD home or submit an offer you must be registered as an agent with HUD.  This function is handled by the management companies which certify individual brokers or offices through their managing brokers to make offers on HUD REO.  Becoming registered is not difficult but it does take time - as much as eight weeks.  Registration forms are available through the registration link on the contractor's home page for your state. 

There are strict rules governing offers and the initial marketing period for a HUD home really constitutes an auction.  Homes are offered for sale in "as is" condition at fair market value based on a recent appraisal and priority is given to buyers who will occupy the property.  Offers submitted during an initial "offer period" will be held until the period ends and then all will be opened and the bid providing the highest acceptable net return to HUD may be accepted.  A home that remains unsold after this bidding process is offered on an "extended" basis and offers can be submitted on any business day. 

HUD will pay the selling broker a commission of up to 5 percent if that commission is specified in the offer when it is submitted.  Agents should bear in mind, however, that this of course will lower the net return to HUD and affect the chance it will be accepted.

HUD does not offer financing on their homes; financing arrangements are up to the buyer of the property.  An offer, however, can specify that HUD must pay all or a portion of certain financing and closing costs; again the caveat about net return.  HUD also has promotional periods during which bonuses may be offered to selling agents.

The procedures followed by the GSEs will be outlined in the next article.