In this final lesson, we will cover commercial REOs and how they are financed.
Many times, the lender wants to move the property quickly. Therefore, after the lender forecloses, an auction company is hired to sell the property. Many auctions have reserve prices or minimums, which the lender will not disclose.
The fourth is the Absolute Auction. These are auctions without a reserve price, and they will result in the property being sold to the highest bidder. In most lender sales – whether negotiated or auctioned – sales are as-is and where-is. This means that the lender does not provide any reps or warranties as to the condition of the asset. In other words: buyer beware!
Many lenders provide financing to investors who buy their REO financing. The buyer typically needs to put at least 20 percent down for the sale to qualify as a true sale. Lender REO financing is typically the best financing for an REO asset. Let’s discuss the general guidelines to follow for chapter 11 bankruptcies. You should obtain all of the following:
- 1. Copy of the original operating agreement/entity documents
- 2. Copy of the bankruptcy filing (BK)
- 3. Financials of the property
- 4. Details of the debt stack
- 5. You should also determine how the DIP loan would be used and the proposed plan of action once out of bankruptcy.