An "exciting opportunity"?

GarrettKimmel said:
A long time associate of my mother's recently came to him with "an exciting opportunity." Red flag, of course. But based on our history with the fellow, my mother heard him out (oh no!).

This man has been traveling around the state and scoping out sheriff's sales.

"Over the past year I have watched several commercial properties get sold at substantial discounts. A couple examples is a strip mall in Lake Placid which had a defaulted loan of 3.9M and the banks opening bid was 1M and no one else bid, so the bank got the property back. The property was worth approximately 4MM. An office building in Victor had a defaulted loan of 11.2M and was sold back to the bank at 2.6M. The building conservatively is worth 8-9M. An apartment building in Lake Placid with a defaulted loan of 12.6M went back to the bank at 4.7M. This property was worth 8-9M and has historically had 96% occupancy. Not as much upside in that deal, but still a decent investment."

He came to us because if such a deal arose in the future he would need 20 percent down to get a temporary loan. After 60 days or so we would either flip the property secure long term financing.

"There is no way of knowing what the banks opening bid will be, but if they were to open it below 7MM, this would have ample upside for a quick flip or cash flow for a longer term investment.

Once it is bought I have lined up a bank to do permanent financing for 100% of the purchase price, so any money would be tied up for a very short timeframe of less than 60 days. As I have already engaged an appraiser and started getting a title policy.

At the sheriff sale, the winning bidder, has 4 hours to return with the funds. So if won, I would need to funds wired to my local bank immediately after the sale. From there I will have my bank draft a cashier’s check for the sheriff.

If this is something that you would be interested as an investor or if you have a hard money you would want to lend let me know one way or another."

On an initial read-through it seems like in most cases the banks would bid these up much higher, it just seems like such a great deal since they were completely uncontested.

What do you think? This fellow is a CPA, so it's not like he's planning on running away with the cash....or is he?
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Save your money and a lot of grief, just pass.
 
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He may not be trying to scam you, but the opportunity isn't actually there. The bank is a bidder on what is essentially their own property, and will always bid up to their idea of a fair value if anyone else starts bidding. The whole auction thing is just a legal requirement, and bonus for the bank if someone does come in with what they think is a decent price and they don't have to go to the cost of foreclosure and resale. Your mom's associate saw an auction with no one else bidding and assumed that an outside party could have gotten the property for $1 more than the bank's bid. However if he had bid, the bank would have continued to outbid him and the "deal" would have evaporated. He needs to show you an instance where an unrelated third party won the bid for it to be a valid opportunity. He'll find that you may still be able to get a decent deal, basically the bank is taking their foreclosure costs out of the asking price, but you won't get the kind of steal he's thinking of.
 
There was no sale. The bank didn't buy anything, they simply foreclosed. That's SOP around here (VA) for how banks foreclose. What you friend saw was a legal proceeding, not a "sale" in the true sense.
 
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