Buying Commercial Foreclosures Part 1 – Understanding the Bank’s Position
Although we have seen a slight increase of Bank owned properties for all property types in the commercial segments, we are also seeing an increase in buyer’s who are looking specifically for discounted REOs. In fact because of all the investor money that is out in the market, we are not only seeing that a good REO comes off the market almost as quick as it was put on, but we’re also seeing multiple offers being made. However, don’t let this be a deterrent for you. There is still a lot to gain by shopping the Commercial REO market, but there are a few things you will need to know before getting into the game.
Understanding the Banks Position –
Regulations require that a lender must keep cash reserves that are percentage of their losses. Because of this regulation, some lenders are able to take a larger loss from their REOs than others. A bank that has limited capital at its disposal will likely be able to entertain only those offers that are equal to or close to the asking price of what they have a property listed for. Accepting a lower amount may add to their losses in excess of what they are required to cover under this regulation.
However a larger bank with more capital can be much more flexible when taking a loss from the sale of its REO.
In this circumstance, the lender may be more concerned with being able to get the asset off its book as quickly as possible then it is about the final sales price. So a low cash offer that will close in under 30 days may be more appealing to the lender than a high offer in which the buyer will need over 60 days to work out the financing.
Also remember that banks are constantly trying to keep their books looking healthy for their shareholders. For this reason, lenders that have the flexibility of having large capital may need to liquidate some of their toxic assets just to improve their balance sheets for the quarter. Again, time is a much more essential than the monetary gain.
This doesn’t mean there aren’t deals to be made with banks that are undercapitalized. In some cases regulators will determine that a bank does not have enough liquid capital, and order them to raise capital in a very short period of time. To do this, banks will begin to liquidate their REOs at fire sale prices just to comply with the regulators. Although time still essential in this circumstance, the bank will typically have a predetermined threshold of what they will need to net in order to comply with the regulators after the sale.
Related Posts:
Buying Commercial Foreclosures Part 2: Researching Properties
Buying Commercial Foreclosures Part 3: Alternative Markets
Commercial Real Estate: Alternative Financing
Should you have any questions or need further information,
please don’t hesitate to contact me, (775) 220-1630
Or visit my website: www.SellingHomesinReno.com
Joshua Talayka
NAR designated: Short Sale & Foreclosure Resource
Chase International
Office: 775 850 5900
Toll Free: 877 922 5900
Cell: 775 220 1630
Fax: 775 850 5901
985 Damonte Ranch Pkwy, Ste. 110
Reno, Nevada (NV) 89521
Legal disclaimer : I am not an attorney or tax professional. The information contained in this article/blog is intended to provide general information on the subject and not to provide any legal or tax advice. You should not act upon this or any information without first seeking independent tax and/or legal counsel.
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