2009 Module 3 Slides


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2009 Module 3 Slides

  1. 1. 3. Foreclosures In this module: • Judicial foreclosure vs. nonjudicial foreclosure • Buyer counseling on REOs 3-1
  2. 2. When All Alternatives Are Exhausted • When refinancing, short sales, and/or loan modifications don’t work, only one option: > Foreclosure 3-2
  3. 3. 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
  4. 4. Mortgage vs. Deed of Trust • If loan instrument is mortgage: > Judicial foreclosure or court- ordered action is typically used to execute foreclosure proceedings 3-4
  5. 5. 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
  6. 6. Forced Sale of Property • Foreclosure requires forced sale of property either by: > Sheriff’s sale > Trustee sale 3-6
  7. 7. 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
  8. 8. 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
  9. 9. Buyer Considerations • Buyers may not receive clear title • Buyers may be impacted in states that offer borrowers the right of redemption 3-9
  10. 10. Redemption • Redemption period: Right of borrower to recover a property after foreclosure • This period varies from state to state 3-10
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. Preparing Buyers on What to Expect • “Gutted” properties, missing appliances, cabinets, wiring, siding, plumbing • Electricity disconnected • Structural damage • Missing or broken 3-14 fixtures
  15. 15. Buying REOs • Lender’s internal cost to foreclose can be significant • REO transactions are investment driven 3-15
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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