The Foreclosure Process and REO Properties.pptx

3 Hours General C.E.
CE.5019002-RE (Classroom)
Copyright 2021 Real Estate School of Nevada, Inc. All Rights Reserved. 1

The Foreclosure Process and REO Properties
The Foreclosure Process
 In Nevada there are two different ways a lender can foreclose
on real property:
 Judicial Foreclosure
 Non-Judicial Foreclosure
 Judicial Foreclosure
 The lender files a lawsuit against the borrower.
 Similar to any other lawsuit,
 It starts with a summons and complaint;
 Then discovery;
 The hearing;
 Ultimately will end in a trial.
 This process is costly and can take a significant amount of time, often over a
year.
 More commonly used on commercial property or large project
 Rarely on a residential home

 Non-Judicial Foreclosure
 The Process:
 Notice is given
 Statutory time periods are followed
 The property is auctioned off to the highest bidder.
 Can be completed in about 4 months at minimal expense to the lender
 This is the preferred method by most lenders for the foreclosure of
residential real estate.
 Shorter time frame
 Reduced expenses incurred
 This course pertains to Non-Judicial Foreclosure since this is the process
used mostly in Nevada.
The Foreclosure Process

Notice of Default
 The Notice of Default (NOD) is the official beginning of the Non-Judicial Foreclosure
in Nevada.
 Parties:
 Beneficiary = Bank/Lender
 Trustee = Holds the title in trust, usually a title company or attorney
 Trustor = Owner/Borrower
 Usually, the Beneficiary will instruct the Trustee to file the NOD when the Trustor is
between 2- and 3-months delinquent on the loan.
 The NOD is filed with the county recorder and is also mailed to the Trustor.
 For 35 days following the recording of the NOD, the Trustor and/or any junior lien
holders have the right to “cure” the default by paying the amount owed for missed
payments along with any late fees and penalties.
 This period is known as the “reinstatement period.”

Redemption Period
 On the 36th day, up to the Trustee’s sale, the owner and/or any junior lien
holders may pay the entire loan balance along with all foreclosure fees and
other allowable expenses.
 SEE EXHIBIT “A” – sample NOD
 Reinstatement Period: Days 1-35
 Redemption Period: Days 36 – Trustee Sale

Nevada Foreclosure Mediation Program (FMP)
 Effective July 1, 2009, along with the NOD, the owner will also receive information
about the Nevada Foreclosure Mediation Program (FMP).
 Law AB 149
 Under the law, owner-occupied owners can request mediation prior to foreclosure
sale.
 The request must be made within 30 days from the date the NOD was mailed to
the Owner by the Trustee.
 To request the mediation, the owner must return the “Election/Waiver of
Mediation Form” along with a cashier’s check for $200.
 The lender will also be required to pay the same fee.
 The mediation must be held within 90 days of filing of the NOD and the lender is
required to have a representative with “decision making authority” present at the
mediation.
 The owner will need to come prepared to show their financial status by preparing a
“Financial Statement” and a “Housing Affordability Worksheet.”
 SEE EXHIBIT “B” – sample FMP forms

What Happens at Mediation?
 The mediator will seek to determine:
 Can the owner afford to stay in the property if some
concessions are made on the Lender’s part?
 Can the Lender make the concessions necessary?
 The process is to come up with a win-win solution to
a difficult situation, if such a solution can be reached
while being fair to all parties.

Notice Of Trustee’s Sale
 On the 90th day following the NOD, the Beneficiary will instruct the Trustee
to prepare a notice of trustee sale (NTS).
 This notice must be published in the newspaper once a week for 3
consecutive weeks (21 days) prior to the actual trustee sale.
 The NTS will contain the date, time and place of the trustee sale.
 SEE EXHIBIT “C” – sample NTS

Trustee’s Sale
 The trustee sale (TS) can be held anywhere, often held on the
courthouse steps.
 Any bidder other than the Beneficiary will be required to pay
cash (certified funds).
 The Beneficiary may choose to open bidding at the entire
amount owed or may start at a lower amount
 To obtain a bidder
 Avoid having the property become an REO (Real Estate Owned)
 When the trustee says “SOLD” at the trustee sale, the property is
sold and there is no further redemption or reinstatement period.

Deficiency
 In Nevada, the Beneficiary may pursue a deficiency against the Trustor.
 To do so, the Beneficiary must file a lawsuit against the Trustor within 6 months of
the trustee sale.
 The Beneficiary is entitled to a judgment against the Trustor for:
AMOUNT OWED + FORECLOSURE COSTS – FAIR MARKET VALUE/TRUSTEE SALE AMOUNT
 When a property is sold short sale, borrower may be pursued for the unsettled loan
balance
 In this case, the time to initiate the collection action is regulated by the statue of
limitations.
 The statute of limitation for written contracts in Nevada is 6 years.
 Therefore, the Lender has up to 6 years following the breach of contract to initiate
legal action for the deficiency.

Bankruptcy
 Some Owners turn to bankruptcy in an
attempt to stop the foreclosure process.
 This is usually only a temporary solution.
 When a bankruptcy is first filed, there is an “automatic stay” that prevents
creditors from pursuing collection/foreclosure actions.
 In the event that this automatic stay is violated, there are serious sanctions
that can be imposed by the bankruptcy court upon the creditor who dares to
violate
 Most creditors take this so seriously that the mere claim by a Trustor at a
trustee sale that “he has filed a bankruptcy” will cause the Trustee to postpone
the trustee sale until the filing of the bankruptcy can be confirmed.
 Once the bankruptcy is filed and the automatic stay is in place, the creditor can
schedule a hearing with the bankruptcy court and obtain a “relief from
automatic stay” to allow the creditor to proceed with the collection or
foreclosure.

Chapter 7
 2 types of Bankruptcy
 “Chapter 7”
 “Chapter 13”
 Chapter 7 Bankruptcy AKA “Liquidation Bankruptcy”
 The assets of the debtor are sold or liquidated, excluding
certain assets which the debtor is allowed to keep by
statute, and the funds are distributed to the creditors.
 Once the available funds are distributed, the bankruptcy is
discharged, and all debts claimed in the bankruptcy are
extinguished.

 “Non-dischargeable Debts” cannot be extinguished in bankruptcy.
 Most common types are certain types of tax claims
 Debts not set forth by the debtor on the lists and schedules the debtor
must file with the court
 Debts for spousal or child support
 Alimony
 Debts for willful and malicious injuries to persons or property
 Debts to governmental units for fines and penalties
 Debts for most government funded or guaranteed educational loans
 Benefit overpayments
 Debts for personal injury caused by the debtor's operation of a motor
vehicle while intoxicated
 Debts owed to certain tax-advantaged retirement plans
 Debts for certain condominium or cooperative housing fees

Chapter 13
 Chapter 13 AKA
Payment Plan Bankruptcy
 The debtor meets with the creditors to reach an agreement as to a
payment plan.
 Once all payments are made as agreed, the debt is satisfied.
 With debts secured by real or personal property, the creditor is entitled to
receive either the amount owed or the property which was pledged as
security for the debt.
 Therefore, bankruptcy will not stop a foreclosure, but is a temporary
solution.

IRS Tax Issues
 Another common issue in foreclosure are the tax implications.
 The foreclosure of a property may become a taxable event leaving
the owner with tax liability to the IRS.
 For example, when you buy a property and later sell that property, your
gain or loss is calculated as the difference between the purchase price
and the sale price.
 When you borrow money against a home and then do not pay the
whole amount back to the lender (foreclosure or short sale), the IRS
position is that the money not paid back to the lender was a “gain” to
the borrower.
 As a result, the foreclosed owner may receive a 1099 from the lender
for the amount that was not paid back.

 IRS Example:
 An owner borrows $400,000 to purchase or refinance a property.
 The property is later foreclosed and at the Trustee’s sale the
property sells for $175,000.
 The IRS position and the Lender’s 1099 would show that the
foreclosed owner had a taxable gain of $225,000 (the amount of the
money that he borrowed and did not pay back).

The Mortgage Debt Relief Act of 2007
 Taxpayers are allowed to exclude income from the discharge of debt
on their principal residence.
 Debt reduced through mortgage restructuring, as well as mortgage
debt forgiven in connection with a foreclosure, qualifies for the
relief.
 This provision applies to debt forgiven in calendar years 2007
through 2012.
 Up to $2 million of forgiven debt is eligible for this exclusion ($1
million if married filing separately).

Renting Homes In Foreclosure To Tenants
 Significant issues have arisen as owners of properties in foreclosure
(or soon to be) rent these properties to unsuspecting tenants
 Who pay their rent on time;
 Only to find out after several months that the landlord is not making
mortgage payments;
 The home has been foreclosed.
 The tenants are left with the task of finding a new place to live and
the expense incurred in the forced relocation.
 Many tenants are unable to recover the deposit made to the former
owner.

Chapter 118A of NRS
 To address some of these issues, Assembly Bill 140 (AB140) modified Sec.
9. Chapter 118A of NRS as follows:
 A landlord shall disclose in writing to a prospective tenant if the property
to be leased or rented is the subject of any foreclosure proceedings.
 The fines imposed for a Landlord violating the section are significant.
 First offense can result in a civil fine of $5,000 and/or misdemeanor
criminal sanctions
 Second offense gross misdemeanor
 Third offense can be elevated to a felony

Real Estate Owned
 Real Estate Owned (REO) - the Lender takes control/ownership of
the property
 Transition To REO:
 Beneficiary will usually retain the services of an Asset Manager
to assist in liquidating the foreclosed property
 Following the TS within a few weeks, an Asset Manager on the
Beneficiary’s behalf, will:
 Take steps to secure the property
 Establish the value
 preserve the property
 Get the property on the market through a local real estate agent that
has a relationship with the Beneficiary or Asset Manager

Real Estate Owned
 The Asset Manager usually uses some type of Web Based Transaction
Management Platform (TMP).
 Through this website or software, the Asset Manager will assign tasks
regarding the property to the agents or to contractors responsible for
repairs and maintenance.
 The agent will then accept the task and report back through the same
platform with the information requested or to report that the task has
been completed.
 Some of the most common used TMP are REOTRANS, RESNET, and
ASSETLINK.
 SEE EXHIBIT “D”

Occupancy Check
 Usually, the first task assigned to
the agent working for the
Asset Manager is to perform
an occupancy check.
 The agent will go the property and try to ascertain who is occupying the
property.
 Sometimes it is as easy as knocking on the door and talking to the person
who answers the door.
 Other times it may take many visits to the property at different times of
day and different days of the week or talking to the neighbors.

Owners Or Tenants
 If the property is occupied by a tenant:
 Federal law requires that the tenant is given 90 days to move; or
 Is allowed to finish out the term of the existing lease if the lease was
entered into prior to the NOD and is an arms-length lease (not to a
family member for Trustor) at market rate and terms.
 The Asset Manager will usually authorize the agent to negotiate for an
earlier termination of the tenant’s occupancy.
 This is known as “Cash for Keys.”
 If the property is occupied by the owner:
 The agent will seek to reach an amicable agreement with the owner to
deliver possession over to the agent on behalf of the Asset Manager.
 Usually this also will entail “Cash for Keys.”

Cash For Keys
 The agent with authorization from the Asset Manger meets with the occupant
of the property:
 Makes an offer of a certain amount of money in exchange for the property being
turned over to the Agent
 On a specific date
 In a broom clean condition
 With all systems, fixtures and appliances of the property intact
 The amount paid for cash for keys will vary based on the value of the property
and runs between $1,000.00 and $7,000.00.
 Once an agreement is reached, it will be reduced to writing and signed by the
occupant and the Asset Manager.
 On the specified date, the agent will meet the occupant at the property and
exchange a check to the occupant for the keys.
 SEE EXHIBIT “E” – sample cash for keys agreement

Re-key And Secure The Property
 Once occupancy is regained by the Asset Manager, the agent will be asked
to Secure, Re-Key, and Post the property.
 Agent posts “No Trespassing” signs
 Secures any broken windows or doors
 Gets the exterior door locks re-keyed
 Many Asset Managers will have all of their properties re-keyed the same.
 Easy for repair and maintenance people to access the properties
 Imperative that buyer’s of REO properties have the properties re-keyed
immediately after closing and prior to moving into the property
 To best protect oneself, this advice should be made in writing and signed by the
buyer.
 The agent will also put a combination lock box on the property.
 SEE EXHIBIT “F” – sample no trespassing sign

Property Condition Report/Repairs/Clean Up
 Once the property is secured, the REO agent will prepare a property condition
report.
 Take pictures of the property
 Pictures of the exterior from all sides
 The street view in both directions
 The home(s) across the street
 Pictures of each room inside the property
 Under each sink in the baths and kitchen
 Any personal property left behind
 Damage to the property
 The agent will then get bids for repairs, interior and exterior clean up, and any trash
hauling.
 Many asset managers will allow agents to use their discretion on repairs and clean
up under a certain dollar amount ($500).
 Others want to approve all repairs and cleaning prior to the job being done.
 The Asset Manager will also want before and after pictures to document all
repairs and clean up.

Expenses
 The agent will usually turn on the utilities.
 Often paid by the agent and reimbursed by the Asset Manager:
 Utility bills
 Repair bills
 Re-key expense
 Clean up
 Maintenance costs
 It may take 30 to 90 days to be reimbursed.

Broker Price Opinion (BPO)
 The Asset Manager will ask the agent to prepare a Broker Price Opinion
(BPO).
 A BPO is more detailed than the standard CMA.
 Some Asset Managers pay the agent compensation for the BPO $30 to
$120.
 Since there is compensation paid, the question is raised, “is the agent
acting as an appraiser” without a license?
 The creation of a BPO by a licensed real estate agent and the payment of
compensation for the BPO is allowed in Nevada, under certain criteria.

(SB 184) Governing broker price opinions went into effect July 1, 2009. To
be valid, the BPO must include all the following information:
 A statement of the intended purpose of the broker's price opinion;
 A brief description of the real property and the interest in the real property
for which the broker's price opinion is being prepared;
 The basis used to determine the broker's price opinion, including, without
limitation, any applicable market data and the computation of
capitalization;
 Any assumptions or limiting conditions used to determine the broker's
price opinion;
 The date of issuance of the broker's price opinion;

 A disclosure of any existing or contemplated interest of every licensee who
prepares or provides the broker's price opinion, including, without limitation, the
possibility of a licensee representing the seller or purchaser;
 The license number, name and signature of every licensee who prepares or
provides the broker's price opinion;
 If a licensee who prepares or provides the broker's price opinion is a real estate
salesman or a real estate broker-salesman, the name of the real estate broker with
whom the licensee is associated; and
 In at least 14-point bold type, the following disclaimer: "Notwithstanding any
preprinted language to the contrary, this opinion is not an appraisal of the market
value of the property. If an appraisal is desired, the services of a licensed or certified
appraiser must be obtained."

 Since the Asset Manager’s BPO forms in many cases does not
have the space to add the necessary items or the agent does
not have the ability to add to the specific form, in September
2009, Greater Las Vegas Association of REALTORS® (GLVAR)
came up with an addendum to attach to BPO’s that satisfies
the legal requirement of the new law.
 [SEE EXHIBIT “G” – New GLVAR BPO addendum]

Listing Property
 The listing agreement between the agent and Asset Manager is
generated by the asset manager and usually has a provision that the
listing can be withdrawn or taken from the agent at any time with
no notice.
 Once the property is listed, the agent is required to:
 inspect the property on a regular basis (usually weekly)
 market the property
 present offers and counter offers until a contract is reached
 Once a contract is negotiated, the agent is responsible to keep the
transaction moving through the closing process.
 SEE EXHIBIT “H” – sample REO Listing Agreement

NRS 113 Waiver
 As part of the contract, most likely the Buyer will be required to provide a signed
and notarized NRS 113 waiver.
 NRS 113 deals with the Real Property Transfer Disclosure Statement.
 Contrary to some popular belief, REO’s sold by a lender to a buyer are not exempt
from the requirement of a property disclosure.
 The foreclosure sale discussed in the statute that is exempt is the foreclosure
between the Owner and the Bank.
 Once the bank acquired the property, when the resale of the property occurs, they
must comply with the disclosure law.
 The law does allow a buyer to “waive” their disclosure rights by doing so in a
written document that is signed by the Buyer and notarized.
 This form is called and NRS 113 waiver and is required by almost all sellers of
foreclosed property and many seller’s for short sale properties.
 SEE EXHIBIT “I” – sample NRS 113 Waiver

Certificate Of Resale
 Nevada Law requires that the buyer be provided with a Certificate of
Resale for all properties located in a Common Interest Community (CIC).
 This information is obtained from the Homeowners Association (HOA) or
more correctly the property management company for the HOA.
 The law requires that the package is provided by and paid for by the “unit
owner.”
 Some agents ask that the buyer pay for the package and are reimbursed at
closing.
 The Certificate of Resale package can run from $50 to $400.
 To comply with the law, at minimum the property language should be that
the “buyer will be reimbursed for the costs of the Certificate of Resale
Package at Close or at Cancellation.”

Homeowners Associations
 Another issue that frequently arises with HOAs, is unpaid association fees.
 The association has been granted a status similar to the government when
it comes to HOA dues.
 When a property is foreclosed, unpaid property taxes will remain as a lien.
 so will unpaid HOA dues
 The law was changed in 2009 to allow the HOA to lien the property for up
to 9 months of HOA dues.
 After the foreclosure and during the escrow, the agent will need to obtain
an HOA payoff in order to be able to deliver clear title at the time of
closing.

Vandalism
 Many REO properties get vandalized.
 Sometimes this is done during escrow and other times at the hands of the
former owners.
 The agent is responsible to ease the losses of the Lender by keeping the
property secure and inspecting the property regularly.
 The buyer’s agent should always make sure to conduct a walk through prior
to close of escrow as close as possible to the actual close.
 If vandalism occurs during escrow, often the Asset Manager will consent to
make the necessary repairs to put the property back into the condition it
was in at the time the offer was made.
 By doing a walk through, buyers can make sure they receive what they
purchased.

Summary
 The foreclosure process and the marketing, selling, and buying of homes
that have been foreclosed, is an area of real estate that is burdened with
pitfalls for the unaware buyer, seller and/or owner.
 By being educated and well informed, the agent can be instrumental in
helping people through the difficult and stressful time in their life or in
assisting them in making the purchase of a lifetime.
 Even with this education it is IMPORTANT to NEVER give clients,
customers, or owners tax or legal advice.
 Always make sure to direct them to the appropriate professional, a CPA, or
Attorney.

End-of-course Quiz
 You are now ready to take the end-of-course quiz.

1. Most lenders prefer the non-judicial foreclosure process because:
a. It is faster.
b. It is less expense.
d. It is less complicated.
d. All the Above

2. The Notice of Default is:
a. The beginning of the foreclosure process.
b. The end of the foreclosure process.
c. The notice given to tenants to start foreclosure.
d. None of the Above

3. The first 35 days following the Notice of Default is known as the:
a. Redemption period.
b. Default period.
c. Reinstatement period.
d. Grace period.

4. Prior to the Trustee’s Sale, the sale must be advertised:
a. Daily for 21 consecutive days.
b. Once a week for 3 weeks.
c. In the Wall Street Journal.
d. On television.

5. The “Automatic Stay” occurs:
a. When the beneficiary files for bankruptcy protection.
b. During the first 35 days following the Notice of
Default.
c. When the Trustor files a chapter 7 or 13 bankruptcy.
d. In the 72 hours prior to the trustee’s sale.

6. The time from the 36th day following the Notice of Default
up to the time and date of the trustee sale is known as:
a. The redemption period.
b. The reinstatement period.
c. The foreclosure period.
d. The depressive period.

7. In a proceeding for a deficiency judgment, the lender must file the
action:
a. At the time of the Notice of Default.
b. Within 3 months of the trustee’s sale.
c. Within 6 months of the trustee’s sale.
d. At the time of the trustee’s sale.

8. REO stands for:
a. Real Estate Operation.
b. Real Estate Opportunity.
c. Repo Escalation Organization.
d. Real Estate Owned.

9. Cash for Keys is:
a. The real estate equivalent of the “Cash for
Clunkers” program.
b. A way for a lender to gain quick possession of a
foreclosed property.
c. A payday advance company for homeowners.
d. A recycling program.

10. An asset manager is:
a. A company that manages retirement programs.
b. A company that handles foreclosed properties for
a lender.
c. A trust department in a bank.
d. A division of Fannie Mae.

11. Is it legal for an agent to do a BPO and get paid in Nevada?
a. Yes, if he follows the rules set forth in SB 184.
b. No, an agent is not an appraiser.
c. Yes, if he does not collect more than $200.00.
d. No, it is expressly prohibited in AB 140.

12. Delinquent Homeowners Association dues:
a. Are wiped out at the time of foreclosure.
b. Remain in place until paid regardless of the amount.
c. Can be placed as a lien on the property after
foreclosure, however only 9 months of dues can be
assessed.
d. Are an abomination and is the cause of our current real
estate downfall.

3 Hours General C.E.
CE.5019002-RE (Classroom)

The Foreclosure Process and REO Properties.pptx

Recommended

Recommended

More Related Content

Similar to The Foreclosure Process and REO Properties.pptx

Similar to The Foreclosure Process and REO Properties.pptx (20)

More from tyler716641

More from tyler716641 (17)

Recently uploaded

Recently uploaded (20)

The Foreclosure Process and REO Properties.pptx