The Godfather of REO
REO #1, a listing model that worked, and the title I rest my case for.
Welcome to the inaugural issue of this newsletter. Twice each month I'll publish here — a little history, a little reform, and a few topics germane to anyone who practices REO from either the agent's or the lender's side. Send me your questions and I'll answer them in the next edition.
REO has been my accidental career, and one I've really enjoyed. I hope you do as well.
REO #1East Oakland, California
Lest you think that all of my memorable REO assets were pristine, well-located properties in good condition, think again.
A forty-room hotel originally built in 1948 in a marginal area now found itself in a sea of dilapidated, abandoned warehouses, rooming houses, and bars where shootings were commonplace. In fact, there had been two murders next door. A man was allegedly shot and killed in the collection of a $3.00 debt. The hotel now catered to a clientele who paid by the hour rather than overnight. It was scary just to perform drive-by inspections.
Also allegedly, when the hotel was still operating it employed a pest inspector to take care of the rodent problem. While his truck was parked street-side and he was inside, all of his tires were stolen.
It was scary just to perform drive-by inspections.Tom DiMercurio
The foreclosure itself was the result of a failure to adequately investigate the condition of the property and the liability associated with its ownership. Immediately after acquiring title, we began the slow process of evicting the squatters and installing a chain-link fence encircling the entire property. Vagrants, squatters, and the homeless found our property to be an attraction. And so it was also necessary to hire a security service to police and patrol the property — again, to limit the Company's liability.
A Tale of Two Values, or No Value at All
A vacant, boarded-up, non-operating hotel is not a very attractive business venture. Nonetheless, technically as an income-producing property, Company policy required that our in-house appraiser — a candidate member of the Appraisal Institute — establish the value based on the Income Approach. His value was always a great deal higher than the market value as established by comparable sales.
I argued that what we had was land value minus the costs to demolish the structures, if we could find anyone willing to buy it.
Sometimes you must just recognize the fact that there may be no recovery and look for any way out. That way out, ultimately, was a gift of the property to a non-profit which would turn the parcel into garden plots for nearby residents.
Transferring this property was one of the most rewarding liquidations of my career.
Thus ended the story of the Homicide Hotel.
When I analyzed that model…
…I found that ultimately the way the commission was distributed heavily favored the Corporate Department. And it was difficult to find out what might be happening with a given property.
With my real estate brokerage background, I disliked this approach. I felt that by democratizing the assignment of listings to many agents — with a target threshold of ten assignments — better focus could be achieved. With no more than ten properties, individual agents could better manage and oversee the financial aspects of caring for vacant properties. The listing agent became the responsible party.
Voila… overnight I created many REO agents.Tom DiMercurio
For the most part, I've followed that model for years and have been well satisfied.
In addition to a lengthy career managing the REO function on the lender's side, I also know this business from the brokerage side. In 2005 I started the remarkably successful Mercury Alliance, LLC — a real estate brokerage dedicated 100% to the REO niche.
From 2005 to 2017, I ran that brokerage first in Denver and thereafter in the Colorado mountains, with offices in Avon, Vail, Basalt, and Grand Junction. Throughout that period, the Mercury Alliance had a dominant share of the lender-owned REO assets in those markets. I was a Fannie Mae broker.
One can argue that I know the REO business from all sides — and that I've made a career, albeit an accidental career, out of bad loans and REO.
I rest my case for claiming, and using,
the title of the Godfather of REO.
Twice each month I'll publish this newsletter. Expect a little history, a little reform, and discussions of topics germane to practitioners of REO from either the agent or the lender/client perspective.
REO has been my accidental career, and one I've really enjoyed.
I hope you do as well.