The Banks Are Beginning To Take
Deeper Discounts On Their Mortgages
October 23, 2007
A. Inside Real Estate Strategy (RES) research
The trends in distressed real estate change with the market so it is critical to watch what banks are doing. I have been speaking at length to mortgage brokers, bankers, foreclosure attorneys and realtors to see the present posture of the banks. My employees or I have also been actively going to sheriff sales on a daily basis conducting further research on the actions of the banks.
To be sure, top news headlines consistently have been the sub prime mortgage and foreclosure crisis. This crisis has affected both the real estate and stock market.
Most important, this crisis has put the banks into a state of fear. This fear is also pervasive with all other players in the real estate market. Our view is that the next two to three years will present a compelling opportunity to buy properties out of foreclosure and bankruptcy for deep discounts.
B. Banks Taking Discounts
Our insider research has revealed that the banks are starting to take significant discounts at the foreclosure sales. Thus, where the mortgage amount on the loan is one number they are announcing a discounted number at the sheriff sale that the bank will accept. This discounted amount is also frequently referred to as the bank’s “upset” number or price.
This is a significant trend change. When the real estate market was hot, the banks would not take lower upset prices. Now, the banks’ state of fear and necessity to liquidate loans means they are willing to take less.
I want to give an illustration on a property we purchased last month. The property was purchased by the owner for 460,000 in March 2006. We determined a probable market value to be 400,000. The judgment of the bank against the owner on the mortgage was well over 400,000 with the same bank holding a second mortgage lien as well. The total in mortgages against the property exceeded the $460,000 the person paid to buy the property.
At the sheriff sale the bank named a lower upset price of $275,100. This is 68% of the probable market value and almost $200,000 less than the amount actually owed to the bank. We decided to go as high as 70% of the market value on bidding because we knew it was vacant and would not have to get anyone out of the house. We usually only go as high as 65% in this present market.
This real example is an illustration of what we have learned by discussing the present situation with different mortgage brokers as to what is going on inside the banks.
C. Which Banks Are Giving Discounts
We have conducted extensive research as to which banks are more likely to set a lower upset price. The key in making more money in buying properties in foreclosure and bankruptcy is to understand which banks more likely to give a discount on the mortgage. Subscribing to our newsletter, product and coaching will enable you to learn these and many more secrets.
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