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In this chapter: When all alternatives are exhausted: foreclosure A closer look at foreclosure sales...
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Transcript of In this chapter: When all alternatives are exhausted: foreclosure A closer look at foreclosure sales...
In this chapter:
• When all alternatives are exhausted: foreclosure
• A closer look at foreclosure sales
• When the property fails to sell at the foreclosure sale: REO
5. Foreclosed and Real Estate Owned (REO) Properties
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• When refinancing, loan modification or short sale doesn’t work, only one option: foreclosure
• Results in forced sale of property and eviction of homeowner
When All Alternatives Are Exhausted: Foreclosure
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• In non-judicial foreclosure (loan instrument is deed of trust):
Generally takes less time than judicial foreclosure
Borrower preauthorized the sale of the home upon default in loan document
Non-Judicial Foreclosure
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• In judicial foreclosure (loan instrument is mortgage):
> Foreclosure or court-ordered action is typically used to execute foreclosure proceedings
Judicial Foreclosure
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Terminology: Notice of Default
• Official notice to borrower that they are in default
• Formally begins the process
• Outlines reinstatement period
• Lenders differ on when they send
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Terminology: Reinstatement
• Time stipulated in NOD when borrower can make required payments and bring account into good standing
• Can vary by both lender protocol and state statues
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Terminology: Notice of Sale
• After Notice of Default (NOD)
• Borrower has not reinstated
• After judgment has been entered (in judicial states)
• Timing is state specific – often 90 days prior to sale date
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Terminology: Foreclosure Sale
• Commonly an auction or sheriffs sale
• Could sell to a ‘buyer’ or could go to bank
• Formal process whereby owner is deprived of their asset
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Terminology: Redemption
• Time after foreclosure sale when the owner can redeem the property
• State specific as to:• Length • What needs to be paid back• Whether there even IS a redemption period
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A Closer Look at Foreclosure and Sheriff’s Sales
• Listed among legal/judicial notices in local newspaper
• Scheduled sale of property is published for specific number of weeks prior to sheriff’s auction/sale
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Buyer Considerations
• Opportunity for property inspections can be negligible or extremely limited
• Buyers may be responsible for evicting occupants
• Buyers may be responsible for paying outstanding liens
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Buyer Considerations
• Buyers may not receive clear title
• Buyers may be impacted in states that offer borrowers the right of redemption
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Why the Lender Gets the House
• Minimum bid lender will take is usually more than value of property
• Investors won’t pay it• Home buyers won’t either• Pool of investors diminishing
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Listing REO Properties
• Know what you are agreeing to
• Verify whether or not your E&O insurance covers activities required for REO listings
• Agents should NEVER take REO listings without permission of their broker
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Listing REO Properties
• Occupancy check• Owner – tenant - ???• Verify lease• Proof of tenancy• May have to negotiate
‘keys for cash’• Complete trash out• Photos – lots of them
• Hiring and paying:– well and septic– re-keying property– winterization– de-winterization– snow removal– lawn care– Utilities
• Reports – reports and more reports
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Finding & Showing REO Properties
• Use the following search terms:
> Bank owned
> Lender owned
> Foreclosure
> REO
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Safety Issues
• Know who your buyers are prior to showing
• Do not meet buyers at property for the first time
• Many REO properties have no electricity; showing them can be hazardous
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Unsupervised Access
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Code of EthicsREALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker.
Writing Offers on REO Properties
• Lender’s internal cost to foreclose can be significant
• Costs accumulate as property goes unsold
• REO transactions are investment driven
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Writing Offers on REO Properties
• Buyer’s chance of offer being accepted greater when:
> Buyer makes offer based on market value
> Buyer has been pre-approved for financing
> They ask for closing date that is sooner rather than later
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Writing Offers on REO Properties
> They agree upfront to “as-is” transaction They do not have any home sale or home
close contingencies Some lenders require pre-approval by
their representative Some are preferring to do the financing
themselves
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Writing Offers on REO Properties
Buying “as-is” does not eliminate right to inspection period
Buyer should have: Home inspection Mold inspection Take photos
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Negotiating the REO Contract
• Buyer’s agents should call listing agent for instructions on presentation of offer
• Listing agent then submits offer to asset manager
• Asset manager will generate addendum for buyer to sign
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Negotiating the REO Contract
• Bank/asset manager determines how subsequent offers will be handled• Until addendum is signed by bank they can
entertain other offers and could accept a different one and reject the first
• Some do not entertain second offers at all
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Counteroffers and Addenda
• Counteroffer is handled through addendum, which is sent to listing agent from asset manager, who forwards it to buyer’s representative via fax or e-mail
• When offer is accepted, listing agent contacts buyer’s representative
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Addendum Issues
• Alter inspection period
• Modify seller warranties
• Change financing provisions
• Impose monetary penalties for buyer’s failure to close
• Mold and other environmental disclaimers
• Limit seller’s liability84
Limited Property Disclosures
• With REOs, property disclosures may be limited
• If buyer client refuses to schedule property inspection, buyer’s rep should ask client to sign an acknowledgment of waiver of inspection
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Final Walkthrough
• Final walkthrough assures same “as is” condition as when offer was presented
• Listing agent and seller will have photos of property when it was listed
• Buyer’s representatives are encouraged to take photos at time of purchase contract
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