The Foreclosure Market
Seeks Deal-Making Pros

Question: I am a rental investor trying to break into the foreclosure market. It is my belief that dealing directly with banks is the most prudent way to buy foreclosures, and I've heard some investors encourage people to buy "at face value from the lender." Though I have been referred to real-estate agents who specialize in foreclosures, I'm not interested in dealing with more salesmen. Can investors really buy foreclosure properties directly from lenders? What's the best way to heed the advice of experts who encourage this strategy?

-- Patrick, Denver

Patrick: Interest in the foreclosure market seems to be endless. I'm just finishing the third edition of a book I wrote about this subject, "How to Find Hidden Real-Estate Bargains" (McGraw-Hill, 1991), and times have changed a great deal since the original version was published in 1986.

Today, the part of the foreclosure market in which you are interested is largely online. The real-estate owned properties you seek are called REOs, which means that lenders have repossessed the homes and are trying to sell them again. While lenders prefer to sell to buyers who will occupy the property, under the right circumstances -- usually if they are struggling to move a property -- they will sell to investors at bargain prices. But in such situations, you'll almost always need to deal with a real-estate agent. To learn more about the various sale programs offered by big lenders, contact Freddie Mac's HomeSteps Asset Services, Fannie Mae, the U.S. Department of Housing and Urban Development and the Department of Veterans Affairs. You may also want to check Bid4Assets.com, a private web site that handles REO auctions for the U.S. Marshal Service, banks and some counties.

Most local banks also have REO properties, but these typically are listed with real-estate agents. The advice about buying "at face value from the lender" has come to mean dealing with these local lenders before they fix a property and list it with an agent. This may be possible with some local banks and other lenders, but you must establish a strong personal relationship with the REO department. You'll need to convince them to call you when they first repossess a property because you can make a quick deal, saving the bank both time and money. How do you get to these key REO people? Sometimes it pays to take your banker to lunch!

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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