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Bank Owned Listings: REO-Real Estate Owned Foreclosures

Monday, April 21st, 2008

A More updated version of short sales is now available here What are Short Sales the Process in Minnesota

Bank Owned Listings: REO-Real Estate Owned Foreclosures

REO is Real Estate Owned, also known as a bank owned property. There are REO agents that specialize in selling REO properties. Let me tell you many of the best REO agents have been around 10-25 years in the business. I will tell you right now that I don’t know a lot about bank owned REO properties compared to some other topics, but I do have some friends who have been buying them or working them for years, so I learn from them.

REO is when the bank gets the house back after the foreclosure process and timeline which you may have seen in our other blog post. Here is what I will tell you. At the time of this writing I have heard of listing agents with 80-100 listings with banks of just REO properties. Keep in mind most good agents work on 3-5 listings at a time. That’s how busy they are. With REO, the bank owns the property free and clear. The previous owner has no ownership anymore, it’s now on the banks books as a non performing asset. Up until the 2007, I saw banks overcharge for bank owned properties and prices, and watched the properties listed on the market for many months until someone paid too much for the house, I couldn’t believe it, but people didn’t know better. Well I’ll be the first to tell you that I think as of this writing April 2008, I think the best deals out there are REO properties. That doesn’t mean all REO properties are a good deal.

The reason I think REO properties are a great deal right now is that banks need to raise money fast, and they are taking back far too many properties, way above normal, it’s putting some in a cash crunch. Also keep in mind that all 2nd mortgages, 3rd mortgages, helocs, mechanics liens, all of that which is typically still a lien on the house when a seller is selling on a short sale, those liens no longer exist when a bank owns the property, the bank can sell extremely low, and just write it off as a loss on their taxes. Especially on $300,000 to $700,000 houses banks are giving great deals right now. You can even get a great deal on new construction houses through the banks. I will tell you right now that REO agents are very particular about using their purchase agreement and having everyone abide by their rules. Also REO agents like to just receive faxed offers, they don’t like to talk a lot on the phone, they are busy people in general. I wouldn’t have the patience to work with banks and be an REO agent, I have a decent temperament and I just couldn’t do it.

One thing I will tell you is if you are a buyer, you better be extremely persistent with your offers. Also you can send in low ball offers and get denied, and do it month after month and eventually one day the bank may take it, timing is everything with these banks. Another thing I”ll tell you is that banks want zero liability with these properties so they will want to play by their own rules on the disclosures, so you may want to hire your own inspector for these properties, after all the banks never lived in them. Banks can sell properties for 50 to 70% of tax value, it exists, I hear about it, I see it. I own bankownedforeclosure.com I may try to list something on that site sometime in the future. Also many bank owned properties need a ton of work, many people underestimate this and can buy something they can’t handle, sometimes it’s structural.

If I could sum up bank owned properties in a few sentences, I would say this: Prior to 2005 let’s say, bank owned properties were in very rough shape on average, banks REO’s were over priced, and they were willing to take months to sell the properties, and the agents were just very hard to reach. Banks were very non negotiable, and the houses were huge projects.

Now if we are talking the current market, I would sum it up saying, REO agents are busier then ever, banks have too much inventory, deals can be had, even new houses, and even houses that don’t need much work or have hardly been lived in. Much of this has to do with mortgage fraud where people didn’t even live in the houses. Banks are willing to negotiate, please work with a buyer’s agent that wants to work with REO’s.

I wouldn’t be that agent to work with the bank’s but I would have 1 or 2 agent friends that know what they are doing and how to negotiate, so please email me at ron@minnesotainvestors.com and I will put you in touch with an experienced agent that knows what he is doing.

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Foreclosures in MN: Minnesota Foreclosure Timeline

Monday, April 21st, 2008

Minnesota Short Sale Homes

A More updated version of short sale homes is now available here What is the MN Short Sales Process

Foreclosures in MN: Minnesota Foreclosure Timeline

This time line should be pretty accurate for the state of Minnesota and for foreclosures by Advertisement. There are two types of foreclosures in Minnesota, one is judicial, and one is non judicial. Everyone tells me 99% of all foreclosures are non judicial by advertisement, meaning they don’t go through court proceedings, and lawsuits, etc.

In the beginning a seller gets behind 30 days, and that may get reported to the credit bureaus. The lender will usually charge late fees, and will send a lender to remind them that they are 30 days late, they may even send a letter if you are 10 days late, even though most people have a 15 day grace period. To be more specific, lenders are more likely to call you a few times before you are a full 30 days late. Some may even hand it over to their collection department, after it’s late. I’ve seen lenders call after the 2nd or 3rd day of the month if they don’t receive the check. Also lenders will typically take your monies and apply it to late charges, interest, penalties, negative escrow, etc before they’ll apply it to any principle on the loan. After someone gets to be about 60 days late, a lender will start sending them more serious notices, and maybe will send a NOD -Notice of Default by the 60-90 day late mark.

This is them going through their routine of going through their motions of sending out the fair amount of letters to notify you. Now depending on the lender, they will probably send you that NOD and say that you must pay all amounts in the arrears just to reinstate the loan. What does that mean to you? Well no more of this partial payment stuff, they want the full amount you are behind, plus late fees, plus any accrued attorney fees. Before we get ahead of ourselves though before this point where you have to pay that full amount just to reinstate the loan and stop the ‘time clock’ for the sheriff sale date, I don’t want to get ahead of you here.

At this point, we have a few different options. In today’s market in 2008 there is recasting the loan, which typically means to put the late payments on the back of the loan, I don’t hear of too many doing this option. There is what’s called a forebearance and/or payment plan with the lender. This is becoming very popular these days, I’ll get to that in a minute. What’s becoming very popular in 2008 is what’s called a mortgage modification, I personally have never done one, but it’s all the rage right now with the market conditions. Basically the lender is allowing for a rewrite of your mortgage terms. This may include going from an ARM, to a fixed rate. This may be a way for you to lock in a far lower interest rate for a period of time. Everyone these days knows a lender doesn’t want a foreclosure back, it can cost them $40,000-$60,000 to take back a house in foreclosure by the time it’s all done. Many people say I don’t understand why the lender won’t work with me, I hear of others getting it done. Well you need to understand a lot of the time the lender funded your loan with an investors money from another company or maybe someone on wallstreet. Now there is usually someone “servicing the loan” sometimes it’s the lender sometimes it’s a large 3rd party. That servicer will talk to you about modifying it or doing anything else you plan on doing, but it’s going to take permission from the investors behind the scenes, that’s why it sometimes isn’t that easy to do.

Ok let’s get back to forebearance. You will hear differing opinions about this, but many say that the payment plan the lenders set up a seller on is doomed to fail, I have heard 85% of the time it can, I don’t know if that’s accurate. The reason is that they usually want 1 1/2 payments per month or more than you were paying before to catch you up. The idea here is if the seller couldn’t make the payments to begin with, why would a higher payment work. Others say it’s the lenders last attempt to get an extra $20000 out of you before they take it back in foreclosure anyways, which they are planning.

There are even more choices here, there is deed in lieu of foreclosure, there is a short sale, there is giving the house back to the bank and staying in the house. First off, from what I have been told by many, the short sale will show as a settlement and affect you the least, the deed in lieu of foreclosure is like a surrender to the lender, where you give them the keys and deed back and just let them take it without going through the long process, some feel this will be looked upon better than a full foreclosure. Then their is the full foreclosure, which will affect you taxwise, and has a chance to cost you on a deficiency. Taxes and deficiencies are a whole other topic. Short sales I could do a few posts on just by themselves.

So let’s say you reinstate the loan and pay everything you are behind, maybe $5000 or $9000 or whatever. You pay that all and reinstate the loan and keep going on like you were before. Let’s say you just can’t make up that money that fast, we have already discussed the other options. If you don’t do anything let me explain what will happen with the timeline. You will eventually become 90 days up to (honestly I have heard of 12-15 months) before the sheriff sale. Most lenders will send that NOD after 90 days, and then they will have to advertise your foreclosure notice in the newspaper at least 6 weeks prior to the sheriff sale, they have to do that. Then at the courthouse steps, the lender will pledge the mortgage or another investor will have to put up the cash for the sheriff certificate. After the sheriff sale you are talking about a 6 month redemption period.

Now again before we get ahead of ourselves, there are circumstances where it’s not 6 months, but it’s rare, but I’ll breifly cover them. Some lenders can get that down from 6 months to 5 weeks, if they can prove “abandonment”, they have to file stuff and that definition has to be followed to a ‘T’. There are also situations where it can take 12 months for the redemption period. I’ll gloss over those. This would include someone who has paid 1/3 of the principle down on their house. not 1/3 of the value(33% equity), 1/3 of the principle balance, that takes years. Also a property with 10+ acres used for agriculture use. Please look into these exceptions they are rare and I don’t know them that well. Let’s say there are 6 months left in redemption after the sheriff sale. Some investor or lender will have the sheriff’s certificate which they’ll hold and eventually receive interest on at the note rate over that period of redemption.

During that redemption that seller may redeem his/her own home, but will need new financing, that’s nearly impossible while you are behind in payments, what lender wants to give you a loan? The seller has a 2nd choice of assigning their redemption rights in the property. I don’t think many people out there know about this.

Meanwhile during the redemption, you are going to have lenders that want to change locks, REO agents that want to kick out renters, or get the place cleaned up, that want to get the place ready later. Stranger things have happened, the seller gets the right in redemption, it’s their property.

This time line is pretty specific to Minnesota, other states, have 30 days redemptions, other states 12 months. Some states have recourse loans, some states have non recourse loans(meaning they can’t come after you for the deficiency).

You will want to talk to an attorney, to get an opinion, and not necessarily the banks’ attorney that’s working the file. Back in the 2000’s, sellers had a lot of equity and tried everything they could to save their home. Since about 2006 to present most people owe too much on their house, and with the market downturn, just need to do a short sale.

Since I didn’t mention what a short sale is above, I will quickly tell you that’s when a lender sells for “less” than what’s owing. Any lien or lender in 2nd or 3rd position on the property, position means(when it was recorded, which order in the time line at the county) those 2nd and 3rd positions will lose their interest at the end of the foreclosure process. The only way to “secure” their position is to purchase with cash, and purchase all positions in front of them. So for example if there was a $50,000 1st mortgage, $20,000 2nd mortgage, and $100,000 3rd mortgage, you can see how a 3rd mortgage company wouldn’t want to lose everything so they would pay for the $50,000 + 20,000 to get control of the property.

At the end of redemption, each lien position has 1 week to redeem the property after the 6 months in order of the liens. Eventually if the other lien positions don’t do anything they will get nothing. The 1st mortgage company isn’t too worried because they have a very safe position for resale and don’t owe anything on the positioned liens behind them. Another thing to keep in mind is this is exactly why short sales work, and especially with 2nd and 3rd mortgages, they are use to ending up with almost nothing during the foreclosure short sale process.

There is so much to know about foreclosures, it’s a risky business. I wouldn’t recommend new buyers buying them. Many need major work, and many have major title issues. If you are a seller you should seek a professional with experience.

For those of you that need help and owe too much on your house currently, and can’t afford the house and are zero payments behind or even 5-6 payments behind, email me at ron@minnesotainvestors.com and I’ll have a short sale specialist help negotiate your loan and sell your house. The mn short sale people I know have done hundreds of transactions.

I also like this foreclosure timeline link

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