The REO Guide

The REO Guide

What does REO stand for?

REO’s stand for “Real Estate Owned” properties. Any lot or home that the bank takes back becomes an REO when the mortgage lender hires someone to manage the repossession and sale of the house because of the homeowner defaulting on payments.

A foreclosure is the act of the bank taking possession of the house through the legal process defined by each state. Once they regain control, the bank must have someone else, a local real estate agent or property firm handle the home auction. This process is long and requires court appearances and specific sale conditions.

What is a trustee’s sale?

A Trustee’s sale is another way to sell off a property when a person does not make mortgage payments for at least 60 days. This method means that the bank must notify the recorder’s office with an intent to sell the property.

Another option is where the homeowner forfeits the home by signing over the deed to the lender sometimes called a deed in lieu of payment. Each state has separate and differing laws that govern these processes.

What happens in a foreclosure?

Real_estate_owned

During foreclosure, the bank is attempting to gain control or possession of the property from someone that is at least two months behind on a mortgage loan. Buying a foreclosure has several steps, the process always begins when a borrower or homeowner does not make a payment for at least 60 days.

Some states require a time period called a right to cure that means the lender must give the person time to catch up the payments and get the defaulted loan in good standing. The lending agency must not add excessive penalties or costs during the curing time.

What happens after the curing time?

When a person has not paid for at least 210 days, the bank or mortgage owner can send an acceleration declaration meaning that the borrower must pay all of the loans or be sued. A three-week notice in the newspaper, the address, the day and time of the sale, and a description of the property is required for the auction. The REO property manager must send a certified notice to the borrower at least 14 days before the sale.

Why do many banks opt for a trustee’s sale?

This method is much faster than the foreclosure process, and it does not involve the judicial system. The homeowner will get a notice of the date and time of the auction if the mortgage lender puts the home up for a trustee’s sale. The bank or lender often gets more money back with this process.

Many finance companies and lenders opt to auction homes through a trustee’s sales because they require less paperwork, time, and hassle. This method can have other names like non-judicial foreclosure or power of sale foreclosure.

What can buyers who bid on a foreclosure expect?

Most payments are made in cashiers checks or cash since these homes often sell for less than the house is worth in good condition. Many homes are behind in maintenance because the borrower is already in debt.

When buying a property you don’t know anything about the house except the general description the manager lists in the newspaper listing. Each state has specific laws and ordinances regulating the length of time a homeowner can stay in the property once it is in the foreclosure process.

If anyone is living in the home at the time of the sale, the new owner has the right to have the occupants and belongings removed immediately. Most borrowers are out of the homes by the time the auction happens for this reason.

Forfeitures, foreclosures, deeds in lieu, and trustee’s sale properties are considered real estate owned because the bank has to sell them to recoup money for the loan. The sale goes through a certified auctioneer or firm with the house going to the person who bids the most money.

REO’s let the lender have an opportunity to recoup some or all of the money they lent out. Trustee’s sales usually end with the homeowner having no responsibility for the property.

foreclosure notice

How to avoid becoming an “REO statistic”

This article wouldn’t be complete without talking about how to avoid becoming an REO statistic. In other words, how can you avoid foreclosure? Nobody that buys a home plans on losing it to the bank. However, life happens and sometimes these things are unavoidable. If you find yourself in a situation where you are about to lose your property to foreclosure, assess the full situation.

How much do you owe on the home? Is the value of your home more or less than that number? How is your credit score? What are current interest rates? How hard would it be to find a buyer? You see, once you ask these questions, you can formulate a plan.

Perhaps you have equity in the home and a decent credit score. If so you can refinance and possibly lower your note. Maybe you definitely need to sell, but you think there isn’t enough equity in the property to pay a real estate agent and still pay off the mortgage. You could however, use a discount real estate broker to sell your home. These types of agents will list your home for thousands of dollars less than traditional Realtors. Regardless of your situation, it is always worth trying to avoid foreclosure.

Final thoughts on REOs

In conclusion, navigating the landscape of REO properties presents both opportunities and challenges for buyers and sellers in the real estate market. Understanding the nuances of Real Estate Owned properties, including the processes of foreclosures, trustee’s sales, and deeds in lieu of payment, is crucial for anyone looking to invest in or recover from the real estate market downturns.

While the prospect of acquiring properties at below-market values can be enticing, it is essential for potential buyers to conduct thorough due diligence, given the complexities and risks involved. For banks and lenders, REO properties offer a pathway to mitigate losses and recoup funds tied up in non-performing loans. However, the journey from foreclosure to the sale of an REO property requires careful management, adherence to state laws, and strategic marketing to attract potential buyers.

Ultimately, while the realm of REO properties is fraught with legalities and logistical challenges, it remains a vital component of the real estate ecosystem, offering opportunities for recovery and investment in a constantly evolving market landscape.