1. 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 75

2. 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 75

3. 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 75

4. In judicial foreclosure (loan instrument is mortgage): >Foreclosure or court-ordered action is typically used to execute foreclosure proceedings Judicial Foreclosure 75

5. 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 77

6. 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 77

7. 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 77

8. 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 77

9. 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 77

10. 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 75

11. 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 75

12. Buyer Considerations Buyers may not receive clear title Buyers may be impacted in states that offer borrowers the right of redemption 75

13. 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 76

14. 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 80

15. 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 62 80

16. Finding & Showing REO Properties Use the following search terms: >Bank owned >Lender owned >Foreclosure >REO 81

17. 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 81

18. Unsupervised Access 82 Code of Ethics REALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker.

19. 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 82

20. 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 82

21. 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 83

22. Writing Offers on REO Properties  Buying “as-is” does not eliminate right to inspection period  Buyer should have:  Home inspection  Mold inspection  Take photos 83

23. 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 84

24. 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 84

25. 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 84

26. 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 liability 84

27. 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 84

28. 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 85

29. Closing Dates and Per Diems Most sellers charge a daily penalty for every day the buyer is late in meeting the contract closing Makes no difference if it was the buyer’s lender that caused the delay 86