Download Forced Sale of Property

3. Foreclosures
In this module:
• Judicial foreclosure vs. nonjudicial
foreclosure
• Buyer counseling on REOs
3-1
When All Alternatives Are
Exhausted
• When refinancing, short sales,
and/or loan modifications don’t
work, only one option:
> Foreclosure
3-2
Mortgage vs. Deed of Trust
• The type of loan instrument
(mortgage or deed of trust) can
help determine:
> How proceedings will take place
> Length of time to complete
proceedings
> Outcome
3-3
Mortgage vs. Deed of Trust
• If loan instrument is mortgage:
> Judicial foreclosure or courtordered action is typically used
to execute foreclosure
proceedings
3-4
Mortgage vs. Deed of Trust
• If loan instrument is deed of trust:
> Nonjudicial foreclosure is used
> Nonjudicial foreclosure typically
takes less time than judicial
foreclosure
For an overview of judicial and
nonjudicial processes, see Figure 8.
3-5
Forced Sale of Property
• Foreclosure requires forced sale of
property either by:
> Sheriff’s sale
> Trustee sale
3-6
Closer Look at Sheriff’s Sale
• 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
3-7
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
3-8
Buyer Considerations
• Buyers may not receive clear title
• Buyers may be impacted in states
that offer borrowers the right of
redemption
3-9
Redemption
• Redemption period: Right of
borrower to recover a property
after foreclosure
• This period varies from state to
state
3-10
When Property Fails to Sell at
Sheriff’s Auction
• When foreclosed properties don’t
attract bidders at sheriff’s auction,
the property is considered real
estate owned or REO
• REO means the property or asset is
owned by the lender
3-11
Counseling Buyers on REOs
• Buyers who are good candidates:
> Are experienced investors
> Understand that most REO properties
are sold “as is”
> Have resources to repair and rehab
the property if necessary
3-12
Counseling Buyers on REOs
• Buyers who are NOT good candidates:
> “Wanna-be” investors
> Those who have contingencies, such
needing to sell another residence
before they can buy
3-13
Preparing Buyers on What to
Expect
• “Gutted” properties,
missing appliances,
cabinets, wiring,
siding, plumbing
• Electricity
disconnected
• Structural damage
3-14
• Missing or broken
fixtures
Buying REOs
• Lender’s internal cost to foreclose
can be significant
• REO transactions are investment
driven
3-15
Showing REOs
• Previewing REOs is an added
benefit you provide as buyer’s
agent
• But DON’T allow buyer client
unsupervised access to REO
properties
3-16
Writing Offers on REOs
• Buyer’s chance of offer being
accepted greater when:
> Buyer makes offer based upon
market value
> Buyer has been pre-approved for
financing
> They ask for closing date that is
sooner rather than later
3-17
Writing Offers on REOs
> They agree upfront to an “as-is”
transaction
> They do not have any home sale
or home close contingencies
3-18
Writing Offers on REOs
• Buyer’s agents should call listing
agent for instructions on
presentation of offer
• Listing agent then submits offer to
asset manager
3-19
Writing Offers on REOs
• 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
3-20
Buyer’s Reps Should Note
• Even though offer may have been
accepted by asset manager, it is
common for acceptance to be
subject to senior management
approval
• Listen carefully to listing agents
because they are an extension of
asset manager
3-21
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
3-22
Managing the Funds
• Earnest money deposits on REO
transactions are handled in same
way as any other transaction
• In most states, earnest money is
not deposited until there is signed
contract
3-23
City POS Inspection
• Some cities require a point of sale
(POS) inspection to assess safety,
soundness, and security of
property
• Customarily, buyer corrects
violations unless seller fixes them
• Many cities require escrow fund to
cover costs of repairs
3-24
Final Walkthrough
• Addendum may state: “buyer to
have walkthrough immediately
before title transfer to ascertain
property is in same condition as
when purchase agreement was
written.”
3-25
Closing Dates and Per Diems
• Asset managers prefer closings to
take place at the end of the month
• Most sellers charge a daily penalty
for every day the buyer is late in
meeting the contract closing
3-26
Possible Benefits and
Disadvantages
• What are possible benefits and
disadvantages of buyers purchasing
property at each of the following?
> Short sale
> Sheriff’s sale
> REO
3-27