Mortgage lenders with growing backlogs of foreclosed properties are teaming up with real estate brokers to unload those properties and generate loan prospects by hosting foreclosure tours.
The tour concept started on the West Coast, especially California -- with its large number of foreclosed homes, said Michael Locker, sales manager at Countrywide Bank FSB in Duluth, Minn., who has been helping organize tours in Duluth and the Twin Cities.
Tucson, Ariz., has more recently joined the trend.
"We've heard nothing but positive things from participants, and one made an offer that is now being examined by the bank," said Todd Greene, a real estate consultant with the Pepper Group Diversified in Tucson, which has conducted two tours on which 15 people were shown 24 homes, all REO properties now owned by some 15 banks.
In response to more than 50 phone inquiries, a third tour has been scheduled for next week, according to Greene. The first two tours were held earlier this month.
Response to a tour last month in Duluth was "fantabulous," according to tour organizer Locker, who prequalified many on that tour and nine of the 13 who participated in a second tour.
Prequalification is required, Locker explained, and the tours are free for those prequalified by Countrywide, while those prequalified by other lenders pay $25.
Three of the 13 prospects from the second tour are preparing offers on one of six homes visited, he said.
"That property was priced right to sell," he said. "A couple of homes were well over-priced for the condition they were in, and a couple were priced very well."
Seven of the 13 from the second tour, and six others have registered for an upcoming tour, Locker reported. Additional tours are scheduled for mid-April and mid-May.
But these tours are often more than simply a series of visits to open houses.
"We do as much due diligence on the properties as possible," Greene pointed out.
And they give presentations on the cost differences between buying a typical foreclosed home and a bank's REO property, which typically sells for a higher price, he said.
"REO homes are typically in better shape," Greene said. "The bank may have done some repairs. And there won't be any liens that a buyer would have to pay off."
Participants almost always are required to be prequalified or provide proof of funds for a purchase.
"We're trying to minimize the number of people who just want to look," Greene noted.
"We don't require prequalification, but it's a benefit to them to know what their affordability is," said Kimberly Koehler, broker/owner of EXIT Three Rivers Realty, in Lake Elmo, Minn., in the Twin Cities area.
Tour organizers also often take other steps to prepare participants for purchases.
Twin City tour participants attend pre-tour training sessions to educate them on the foreclosure process and to learn the advantages and disadvantages of purchasing foreclosed homes, Koehler explained.
And a home inspector and a construction contractor, who have already seen the homes, are present on the tour buses to explain what potential buyers should be aware of and discuss the costs of required repairs, she said. Further, tour guides point out that the properties may qualify for special financing for rehabilitation under HUD's 203(k) program.
One of seven homes from a mid-March tour was the only non-REO or non-short sale property, but it had been an REO when it was purchased last year by an owner who then invested in improvements and now is selling the home.
"People can see a property that was in distress and then purchased and fixed up. They can see what it cost in '07 and what it's now selling for," said Koehler, who pointed out that this may stimulate sales of the six REOs.
Some of the 15 participants have expressed interest in making purchases, but none have yet submitted any offers, she said.
A second tour has been scheduled for April.
Locker said the Duluth foreclosure tours include as sources a Realtor, a title company representative and a licensed contractor to answer questions about property defects and required and desired rehab work.
"The tours," concluded Twin Cities' Koehler, "are a great way to get people out looking at houses."