REO Basics


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REO Basics

  1. 1. REO Basics A Training Seminar Presented by
  2. 2. • This Presentation Will Cover the basic “need to know” items in an REO transaction from contract to closing • We’ll address issues and problems throughout the transaction and after close • We will NOT address specific seller issues • Goal is to give all involved parties a better understanding of how they can service their customer better to provide for a smoother transaction for all
  3. 3. Why REO? • % of current sales/listings • Held inventory • Cash buyers • Investors • First Time Home Buyers
  4. 4. Why West Title? • In down economy and challenging market West continues to grow • FNMA Preferred Vendor • LPS Asset Management Services “2009 National Title Vendor of the Year” • We do not have “contracts” with our sellers, they choose us more often because of our expertise, experience and customer service.
  5. 5. Outline of Presentation • How Property Becomes REO • File Process • Purchase Agreements and Addendums • Code Violations, Assessments, Water & Utility Bills • Title Commitments and Final Policies • Legalities of What Title Does and Doesn’t Cover • Closing and Closing Costs • Questions and Comments
  6. 6. • How Property Becomes REO – When Property is Transferred – Who orders Title – What else Title Company does • Overview Of The File Process – Seller Orders Title – REO Addendums Often Name Preferred Title Company • Preliminary Title • Transaction Completed Quickly • Funds • Cost Savings – MN is Buyer’s Choice State • Determines if Seller Will or Will Not Pay • New Disclosure Laws for All Loans – Other Seller Requirements of West Title • “Behind the Scenes” Responsibilities – “Preferred Vendor” Status
  7. 7. Purchase Agreements and REO Contracts • REO is Different Than Traditional Sales • Important to Read & Understand Addendum – FNMA addendum included in handout • Addendum Supersedes MN PA – Sets Final Terms – Changes Responsibilities & Obligations of All Parties
  8. 8. REO Addendums: – Purchasing Property “As Is, Where Is” – Sets Closing Date, Penalties & Closing Agent – Allocation of Closing Costs & Prorations – Deed Restrictions – Inspection Timeframes, De-Winterization
  9. 9. REO Addendums: – Purchaser Becomes Responsible For: • Obtaining Condo Docs • Condition of Property • Code Violations • Conformity to Zoning Laws • Environmental Hazards, • Survey Issues, etc. – Waiver of Recourse by Purchaser
  10. 10. Completing The Addendum: • Purchaser’s Name(s) – Must match EXACTLY how they take title • If Business Entity – Contract Must State Exact Legal Name • Check with Secretary of State • LO’s: Make Sure Docs Match Contract • Corrections Require An Amendment – Could Cause Delays • Deed Only to Purchasers on PA – Cannot add parties w/o amendment signed by ALL parties – In some instances new contract may have to be signed
  11. 11. Completing The Addendum: • Any Changes to Terms Must Be Done With an Amendment Signed by ALL – Includes Closing Date Extension if Expired – Types of financing • Seller Paid Closing Costs – Limited To Actual Costs • No “Legal To Govern” Verbiage • Loan Specific Documents – FHA, MHFA or Bond Financing – Submit ALL document for seller to sign together
  12. 12. REO Addendums: • Do Not Assume All REO Sellers Are the Same • Title Companies Don’t Negotiate Contracts – Only Follow Negotiated Terms • Earnest Money: Cashier’s Check or Wire • Handout: FNMA Addendum – Pay close attention to sections 2, 10b, 14, 28,38
  13. 13. REO ASSET Listing Agent Listing Agent Title Company Title Company Computer/Website/Email Computer/Website/Email Asset Manager Asset Manager Closing Coordinator Closing Coordinator
  14. 14. • Code Violations & Special Assessments – Code Violations Are Like Traffic Tickets – All Cities Treat These Differently • Difficult to keep up • Many posted differently – TIP: Go To City To Check for Violations • Use Our Handouts: REO Checklist & City Ordinances – Code Violations Not Covered By Owner’s Policy – Refer to Addendum re. Special Assessments • TIP: Vacant Building Registration Fees & Renewals – Certified Assessments & Annual Assessments
  15. 15. • Water and Utility Bills – Water and Code are 2 Biggest Post Closing Issues – 20 Day Limit on Unpaid Code Violations and Utilities • Buyer’s responsibility to transfer utilities to their name • Cannot submit bills >20 days, accounting is closed – Most Assume Title to Handle – Some Sellers Won’t Allow on HUD • Per listing contract agents are to pay utilities outside close – Final Water Bills Through Listing Agent – Water and Utility Bills
  16. 16. Title Commitment • Schedule A Consists Of: – A) Effective Date – B) Proposed Insured: Buyers’ Names – C) Vesting – D) Legal Description • Comes from Sheriff’s Certificate, which comes from info on the foreclosed mortgage
  17. 17. Title Commitment
  18. 18. Title Commitment • Schedule B Consists Of: – A) Schedule B-I Requirements – Requirements to be met at closing to insure and close the transaction » Required deeds to complete chain of title » “Clouds” on title that need to be cleared prior to closing (ie. prior mortgages) » HOA letters and liens
  19. 19. Schedule B-I
  20. 20. Schedule B-I (con’t)
  21. 21. Title Commitment • Schedule B Consists Of (con’t) – B) Schedule B-II Exceptions – Exceptions that will appear on the final title policy as well as status of real estate taxes, special assessments (levied and pending) and any documents recorded on the property such as easements, restrictions, covenants and declarations etc. – These exceptions will carry over to final policy
  22. 22. Schedule B-II
  23. 23. Schedule B-II (con’t)
  24. 24. Title Commitment • GAP Coverage – Merely title insurance coverage from effective date to the date documents are actually recorded at county – Provided on every West owner’s and lender’s policy if West conducts closing • Owner’s Policy – Issued after recorded docs back from county – Schedule A shows buyer vested in title & legal description as per recorded deed – Schedule B shows all exceptions to coverage
  25. 25. Title Commitment • Title Orders – Order is Needed From Buyer’s Lender ASAP to Start the Update Process – “Official” Order Form Not Needed, But We Do Need: • A) Mortgagors names and contact information • B) Loan amount • C) Property address • D) Let us know if you need plat coverage • E) CPL info • F) Contact info for where to send title commitment • E) West order form in handout…just in case
  26. 26. Selected Policy Coverage And Exclusions • 2006 ALTA Owner’s Policy and Loan Policy *handout – Government Regulation – Exercise of Police Power – Policy Jacket • West Disclosure & Compliance Agreement *handout – Items To Be Addressed Prior To Closing – Buyer’s Responsibility Post Closing • City Ordinances Regarding Sale of Property *handout
  27. 27. Code Compliance • Code Compliance – City of Minneapolis • Truth in Sale of Housing (TISH) • “Acknowledgment of Responsibility” • Condemned, Vacant or Boarded – City of St. Paul • Code Compliance • Categories 1, 2 or 3 – City of Brooklyn Park • Require Escrow to be Held By Title Company • All Escrows for Code Compliance Must Appear on HUD
  28. 28. Title Issues • Title Curative 2 Step Process – Task Based Software, 2/09 – Title Cleared on Asset After Sheriff Sale – Clear Title to Resolve Issues – After Asset is Sold – Fully Executed Contract – Deed Request From Seller is Immediate – Review Title to Clear Any and All Outstanding Issues
  29. 29. Title Issues • HOA’s, Garages and Legal’s – How to Tell if There is an HOA – Management Company Info – Garages in Addition to Home – Legal Description from Sheriff CertificateHelpful Websites • Helpful Websites, Refer to Handout
  30. 30. Closing • REO vs. Traditional Closing – Traditional: • Seller attends closing • Deed and HUD signed at closing • May be easier to handle last minute items – REO: • Seller does not attend closing • Deed and HUD must be signed prior to closing • Seller is available via email and websites, occasionally by phone • Closing coordinator cannot sign anything regarding contract or make any changes to contract.
  31. 31. Closing • Deeds – Sent to seller within 5 days of contract – In West’s possession within a few days of closing • HUD Approval – Each seller has very different requirements • Example: – 2 days, no buyer’s numbers – A few hours, must have buyer’s numbers – 48-72 hours, must have buyer’s numbers » Title needs package or lender’s instructions » Possibly use Good Faith Estimate – You will not have same requirements on all files – Not all sellers require 72 hrs, timeframes are company specific
  32. 32. Closing • HUD Approval (con’t) – Occasionally rescheduling is necessary • West does not take this lightly • Only when absolutely necessary and in best interest of purchaser • Scheduling – Schedule early, due to seller’s timelines – Our schedulers are proactive to schedule per contract – Occasionally exceptions can be made, West will mediate, but not always possible
  33. 33. Closing Costs • Buyer’s title and recording fees same as traditional closing • READ ADDENDUM CAREFULLY – Number one cause of delays are unexpected items in contract • Examples: – One REO seller considers all costs as BUYER’s fees – One REO seller won’t pay any transfer taxes – One REO seller will pay only specific buyer costs • West neither highest or lowest in marketplace – Many sellers have “preferred” title companies – West deliberately set fees to make sure no buyer was taken advantage of.
  34. 34. REO Partnership • REO Closings Are Complicated • Many Variables, Constantly Changing • Feel Free to Call Us! • We Want You and Your Clients to Have a Smooth Transaction
  35. 35. Questions And Comments
  36. 36. Thank You Happy Holidays from Everyone at West Title!