1. In this module: Judicial foreclosure vs. nonjudicial foreclosure Buyer counseling on REOs 3. Foreclosures 3-1

2. When All Alternatives Are Exhausted 3-2 When refinancing, short sales, and/or loan modifications don’t work, only one option: >Foreclosure

3. 3-3 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 Mortgage vs. Deed of Trust

4. 3-4 If loan instrument is mortgage: >Judicial foreclosure or court- ordered action is typically used to execute foreclosure proceedings Mortgage vs. Deed of Trust

5. 3-5 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. Mortgage vs. Deed of Trust

6. 3-6 Forced Sale of Property Foreclosure requires forced sale of property either by: >Sheriff’s sale >Trustee sale

7. 3-7 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

8. 3-8 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

9. 3-9 Buyer Considerations Buyers may not receive clear title Buyers may be impacted in states that offer borrowers the right of redemption

10. 3-10 Redemption Redemption period: Right of borrower to recover a property after foreclosure This period varies from state to state

11. 3-11 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

12. 3-12 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

13. 3-13 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

14. 3-14 Preparing Buyers on What to Expect “Gutted” properties, missing appliances, cabinets, wiring, siding, plumbing Electricity disconnected Structural damage Missing or broken fixtures

15. 3-15 Buying REOs Lender’s internal cost to foreclose can be significant REO transactions are investment driven

16. 3-16 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

17. 3-17 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

18. 3-18 Writing Offers on REOs >They agree upfront to an “as-is” transaction >They do not have any home sale or home close contingencies

19. 3-19 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

20. 3-20 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

21. 3-21 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

22. 3-22 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

23. 3-23 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

24. 3-24 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

25. 3-25 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.”

26. 3-26 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

27. 3-27 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