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

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

3. Mortgage vs. Deed of Trust
• 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. 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. 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 overview of judicial and nonjudicial processes, see Figure 11.
3-5

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

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

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

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

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

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. Writing Offers on REOs
• Buyer’s chance of offer being accepted greater when buyer:
> Makes offer based upon market value
> Has been pre-approved for financing
> Asks for closing date that is sooner rather than later
3-17

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. 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. 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
• When offer is accepted, listing agent contacts buyer’s representative
3-20

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. 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. 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. 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. 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. 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. 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