Question 1

What title issues should a buyer expect when acquiring deed-in-lieu REO?

Accepted Answer

The primary title concern is subordinate liens that were not extinguished by the deed-in-lieu. Unlike a foreclosure sale (which in most states extinguishes junior liens by court process or trustee sale), a deed-in-lieu transfers title subject to all encumbrances below the accepting lender's mortgage. Junior mechanic's liens, second mortgages, and judgment liens remain attached to the property. Buyers must conduct a full title search and either negotiate lien releases with junior creditors or purchase subject to those liens at a price that accounts for them.

Question 2

How do lenders typically price deed-in-lieu REO for resale?

Accepted Answer

Lenders typically commission a current appraisal or broker price opinion when accepting the deed-in-lieu and use that as the starting benchmark for resale pricing. However, lenders are not maximizing equity, they are minimizing REO carrying time and regulatory exposure. Buyers who can offer fast-close terms, minimal contingencies, and all-cash (or pre-committed financing) routinely achieve 5-15% discounts from appraised value, particularly for assets that have been in REO for 6+ months.

Question 3

Do lenders advertise deed-in-lieu REO publicly?

Accepted Answer

Larger lenders maintain REO portals, Wells Fargo, Bank of America, and regional banks often list REO online. CMBS special servicers use brokers who list on CoStar and LoopNet. However, a meaningful portion of deed-in-lieu REO is disposed of quietly through direct outreach to qualified buyers, particularly for larger assets where public marketing would attract unwanted attention to the extent of the lender's problem loan portfolio.

Question 4

What is the difference between buying the REO directly versus buying the defaulted note first?

Accepted Answer

Buying the REO directly means you are purchasing the real estate from the lender after they have taken title. You are a real estate buyer, the seller is the lender. Buying the note first means you purchase the loan from the lender before they foreclose or complete a deed-in-lieu, you then pursue the workout as the new lender. Note purchases give you more control over the process and can deliver better pricing, but require more capital sophistication, time, and legal expertise to execute.

Question 5

How do banks identify buyers for their REO commercial properties?

Accepted Answer

Banks use a mix of channels: their commercial real estate broker relationships (who already know the bank's REO stock), their internal REO officer's network of regular buyers, and their own REO portal if they maintain one. The most reliable way to access bank REO is to be a known, pre-qualified buyer in a bank's REO network before a specific asset comes to market. OffMarketX facilitates these introductions as part of our buyer registration process.