An REO fund that assumes courthouse steps supply will translate into acquisitions usually finds it does not

That servicer pipeline lag is the part nobody prices honestly. In the Columbus, Ohio market across 2022 and 2023, the gap from filing to REO disposition was running closer to 22 months on anything with a contested foreclosure, well past the 14 to 18 your operator assumed, so those numbers were actually on the optimistic end. The 9 percent you are landing on is roughly fair compensation for illiquidity paired with retail-grade deal flow, which is exactly what MLS-heavy sourcing produces.

The filing-to-disposition gap killed a deal structure I was watching pretty closely in 2022, never committed but came close. What I kept trying to get a straight answer on was cure rate at the NOD stage, because in the Southeast specifically a meaningful chunk of those filings never convert at all, borrower works something out, servicer does a mod, whatever. So you have people modeling 60 or 70 percent of filed volume as eventual acquirable inventory and the actual conversion to REO disposition in some of those Georgia counties was running closer to 30. That math destroys an acquisition thesis before the holding period even starts.

Did the operator have any direct servicer relationships before the fund launched?

The 14 to 18 month hold at the servicer level is actually the shorter end of what these structures produce. Take a similar fund out of Charlotte, single operator, Mecklenburg and Gaston counties, where some of the paper sat 22 months before anything moved to disposition. What surfaces in the quarterly reports, usually only after asking three times for the actual acquisition source data, is that the operator has zero preferred servicer agreements in place. Nothing. They are relying on the same auction.com account any retail buyer has, and that is a lottery ticket dressed up as a pipeline. The right requirement on the next commitment is that the operator shows existing servicer relationships with named contacts and volume history, and a deck slide saying "established institutional relationships" does not count. That phrase appears in approximately 100 percent of REO fund decks and means nothing without the call logs and the closed deal count behind it. The MLS concentration number you pulled is the tell. Seventy percent from three listed assets is no edge at all, and the next question is what the average days on market was for those three before your operator got to contract. If it was over 30 days, they were late to a retail deal. A fund run that way lands around 10.8 net over four years, which is fine and is also a bond with more paperwork. What actually works is an operator with loss mitigation contacts at two regional banks who buys NPLs upstream, before the foreclosure filing even happens. The spread there is real because you are solving a problem for the servicer rather than competing with every Zillow alert in the zip code.

Filings work as a sentiment indicator. They are no kind of inventory calendar.

Nine percent net on a fund that was supposed to own distressed Georgia and Tennessee REO is not a disaster, though it is a pretty expensive lesson in what access actually means in this asset class. The operators who consistently beat that spread do more than watch filings. They have note purchase agreements already in place, or they are buying pools directly from the servicer before an asset ever gets assigned an REO number. What was the operator's balance sheet situation going into the fund raise, specifically whether they had the liquidity to buy non-performing notes upstream, or whether they were set up purely to close at the back end of the servicer process?

The MLS sourced deal point is the one that should end the conversation before any capital is committed. Consider a smaller co-investment in a single market like Polk County, Florida, same thesis, where the operator talks about courthouse volume like it is a harvest schedule. Forty percent of what actually closes comes off Hubzu and Auction.com, which means bidding against every wholesaler in the state with a laptop. That fund lands around 10.2 percent net on a deal underwritten to 16, and the gap comes entirely from acquisition premium rather than operations. The sourcing transparency question belongs at the front of diligence, with a request for the trailing 12 months of closed deals with origin channel before anything else gets reviewed. If an operator cannot hand that over in 48 hours, the pipeline is not what they say it is.