WHEN BUYING A FORECLOSURE IN MICHIGAN UNDERSTANDING HOW YOUR PROPERTY TAXES WILL BE COMPUTED IS CRITICAL!

When buying a foreclosure in Michigan, if you assume your property taxes will be based on the price you paid for the home you'll be in for a big shock. Your taxes will very likely be based on a figure that has no relationship to the current market value, let alone the sale price. It's called the SEV, which stands for State Equalized Value. And it can easily be twice the actual sale price of the home.

HOW CAN THIS HAPPEN? YOU ASK....

Back in 1994 when homeowners were losing their homes to tax sale because our property tax structure was completely out of control, the Headlee Amendment and Proposal A passed. They stopped the double digit escalation of assessments and capped the taxable value of every home in Michigan at its 1994 value. After that, the assessors could only raise your taxable value no more than 5% or the rate of inflation, whichever was less. Inflation has been running about 3%. So that's how much your taxable value goes up every year...... no matter what. Proposal A also said when a home sold, the cap came off. The new taxable value was either SEV or  the sale price. Assesors routinely went with sale price, because it was most likely higher than the SEV. After the sale,  the taxable value and SEV would be changed to equal sale price.

WHAT IS THE DREADED "SEV" ANYWAY?

That was then. This is now. For the first time in history, homes in Michigan are selling below SEV. And what is SEV anyway? Sate Equalized Value. That's the figure they think your home is REALY worth....but they can't tax you on. It's what you USED to be taxed on before the Headllee Amendment and Proposal A came along.  So now you see two figures on your tax bill. The SEV, (the figure the assessor thinks your home is REALLY worth), and the Taxable Value, which is the lower figure they're stuck with using to base your taxes on.

THE MARKET GOES SOUTH AND THE ASSESSOR GETS CREATIVE

 So when homes suddenly started selling for less than SEV, the assessors went back and dusted off Proposal A. When a home sells and the cap comes off, assessors may choose SEV instead of sale price as the new taxable value. Since homes are selling far below SEV...and the townships and cities are broke...they're choosing the SEV instead of the sale price as the new taxable value. Because they can.

BUT I CAN APPEAL MY TAX ASSESSMENT....RIGHT?

Buyers who get a bargain on a foreclosure are in for a shock when they get their tax bill and find it's based on a figure that can be twice as much as they actually paid for the home! So they appeal to their local Board of Review and for many reasons I won't bore you with here, they deny it. (Some are their fault...some are the way the state forces them to work with formulas). The good news is you can appeal to the State Tax Tribunal, and they will most likely find in your favor. The bad news is, as a result of this problem affecting just about every buyer in the state, the tribunal has a 3-4 year waiting list!

 So, understandably, taxpayers are storming Lansing with torches over this, and our diligent lawmakers are "working on" revising the formulas. But who knows how long that will take. After all...it's our government we're talking about here. And the longer they take to fix it, the longer the local governments can collect these artificially high taxes, which gets the state off the hook to send them more money. Recently some local assessors have reduced SEV's a bit across the board in their communites. But it's not nearly enough to equal what most of these foreclosures are actually selling for.

 So......until this mess is fixed, I warn my clients...you will get a great deal on a home...but be prepared to pay a tax bill that bears no relationship to what you actually paid for the house.... for a while anyway.

LET'S JUST COMPLICATE IT FURTHER WITH "HOMESTEAD" vs. "NON-HOMESTEAD" STATUS

 With regard to "homestead exempt" versus "non-homestead" tax status. When the Headlee Amendment and Proposal A passed, and the school tax was removed from homes, they had to figure out a way to get it back. (Of course!) So they hiked the sales tax from 4% to 6% and they said the school tax will only be removed form the home you actually live in. That one is "homestead exempt". Second homes, rentals, vacant homes and commercial will be "non-homestead" and will pay an extra 18 mils for schools. (That's $1,800 per hundred thousand of taxable value). How do you know if a property on the MLS is "homestead exempt"? On the listing there will either be a "Y" or an "N" next to the word "Homestead". Depending on the local millage, non-homestead status can raise your taxes 40% to 100%. Example;  In my area the City of Howell millage is about 42. So adding 18 mils raises it about 40%. But Cohoctah Twp millage is only about 22. So adding 18 mils there nearly doubles your taxes.

BE ON THE LOOKOUT.....ASSESSORS ON THE PROWL!

Since some owners have already moved, and of course all foreclosures are vacant, AND the townships are broke, the assessors are on the prowl looking for vacant homes so they can change them from homestead to non-homestead status and get more tax dollars. When the home sells, if the new owners will be using it as their principal residence, it will change back to homestead status. That's the good news. The bad news is that the state is not known for speed and efficiency. And remember, Proposal A is a state law, not a local law. So the state said "We're tired of recording all these changes every time a home sells. Too much like work. So, we don't care when a home sells and the status changes, we're only going to record it once a year. And that date is May 1^st"

 So, if you buy a non-homestead status home and close after May 1^st 2009, and change its status from non-homestead to homestead, the change will not take effect until May 1^st 2010. And you're stuck paying those artificially high taxes for nearly a whole year. Buyers need to close no later than April 30^th to make the recording deadline for the change from non-homestead to homestead. If you know you will close after the deadline, the best you can do is go to the seller and ask for concessions to cover those high taxes for the coming year until the new status is recorded. Sometimes they'll grant them, sometimes they won't. But remember, that's a NORMAL seller we're talking about. In the case of foreclosures and short sales, the banks could care less, so they will most likely not give you tax concessions. As a result, it's important to know exactly what the tax implications are on a foreclosure or short sale before making an offer.

HOW DO I FIGURE OUT WHAT MY TAXES ARE GOING TO BE?

To determine what your property taxes will be, go to the State of Michigan website and enter the current SEV on the home as the taxable value. It will show what the homestead and non-homestead rate would be. Just click here to acces the page.

 

 

 

When a homeowner owes their lender more than the home is worth and is therefore unable to get enough from the sale of their home to pay off their mortgage, that’s a “short sale”. When a home such as this is on the market, the homeowners will have to ask their lender to accept an offer on the property that is less than they owe.

THE LENDERS LOGIC

However, most lenders will not simply accept a short sale from a homeowner just because they request it.  If the homeower is current on their payments the lenders logic is; “Well, they’re making their payments now, why should we take a short sale? Just let them continue making the payments.”

THE "HARDSHIP" ISSUE

 As a result, lenders will require the homeowner to demonstrate “hardship”. In some cases, the homeowner must have missed a certain number of payments on the home (depends on the lender) and the house must be listed on the MLS. Every lender has different “missed payment” criteria. Some require the homeowner to be at least 30 days late, others require 60 or even 90. Some will accept what is called a “rolling 30”, meaning the homeowner misses one payment and then begins to make payments on time, but as a result of the missed payment, is always 30 days late. Some will allow the homeowner to remain current on payments. Every lender is different.

The homeowners must also write a “hardship letter” explaining why they need to sell, and the reasons for the hardship. But a hardship letter alone is not enough to qualify. If they have a good job, good income, and enough assets to cover the short sale by bringing cash to the closing table to cover the loss and pay off the mortgage, it’s unlikely that the bank will agree to accept a short sale request.

THE PROBLEM WITH "PMI"

 If the homeowners feel they qualify by meeting the criteria for the lender to consider a short sale, there’s still more. If the note is insured by a third party against default by the borrower, meaning the homeowner carries PMI (Private Mortgage Insurance) or if it’s FHA, Fannie Mae, Freddie Mac or VA, there is no incentive for the lender to take a short sale. All the lender has to do is wait for the home to go into foreclosure, pass through the 6 or 12 month redemption period and then they will be paid off in full by the insurer for the entire balance due, regardless of the market value of the home. Then the home becomes the property of the insuring party to sell. UPDATE: Lenders with insured loans will now consider short sales since the TARP money arrived.

THE NEGOTIATIONS - THE PAPERWORK

The next step is the negotiations. The homeowners must sign a form authorizing their Realtor to speak with the lender on their behalf. It usually takes 72 hours for the bank to respond to the request. However, depending on the lender, it can take even longer, sometimes weeks or even months. At that point, the Realtor orders a “loss mitigation” package which will outline the requirements for the lender to consider a short sale. Both the Realtor and the homeowner must complete the package. The homeowner will be required to provide much the same documents that were necessary to get the loan in the first place, w-2’s, pay stubs, tax returns, bank accounts, credit report, assets and debts. Only this time it’s to prove they don’t have the money to make the payments or bring cash to the closing table. The Realtor will be required to prove to the lender that the list price for the home, while less than is owed on the note, is fair market value. This is done by preparing a market analysis, including comparable homes and providing a BPO (Broker Price Opinion) which is similar to an appraisal. However, when an offer comes in, before accepting it, the lender may send out their own appraiser, just to be sure.

THE CURSE OF THE HELOC

If the homeowner has more than one loan on the house, usually a HELOC, (home equity line of credit) it complicates things. When the lender who holds the primary loan gets an offer, their negotiator must go to the secondary investor (HELOC) and convince them to go away so they can sell the home. Remember, while it's at this stage, all secondary liens are still in place. Once it goes to Sheriff's Sale and the 6 month redemption period runs out, it becomes an REO (Real Estate Owned, the term the banks use for foreclosures). Then all secondary liens automatically go away (except taxes). That means the HELOC gets zip. So there's some incentive for them to take a little now to go away, vs. get nothing later. However, the fly in the ointment of most short sales is the HELOC demanding more than the primary lender is willing to give to go away. This is the main reason many short sales fail.

WHY BOTHER?

At this point you may be asking yourself…what’s the point of all this work? Just tell them to hand the deed back to the bank and walk away.”  After all, isn't that what the "experts" on the morning talk shows are advising? (Who are these people?). That’s referred to as “Deed in Lieu of Foreclosure” and it appears on the homeowners credit history as “Deed in Lieu” which is even worse than a foreclosure. Because it says to creditors…”They didn’t even try. They just gave it back and walked away”. By selling the home short, it appears on their credit report in a manner similar to a “Paid Charge Off” or "Settled". That says to creditors “They did their best to get as much as they could to pay off the note”. Much better. Even if the home goes to Sheriff’s Sale, a short sale during the redemption period shows up in a manner that is similiar to a “Paid Charge Off” which is much better than a full foreclosure and light years ahead of a  “Deed in Lieu”.

BUYER BEWARE

The caveat to buyers considering the purchase of a short sale home is the time factor. It takes much longer to buy a home in this stage than after it has passed into foreclosure, gone through the 6-12 month redemption period and is now what is refereed to as an REO. That stands for Real Estate Owned, the term the lenders use for the properties that have gone back to them completely or have been paid off by a third party insurer such as HUD and turned over to them to sell.

When considering making an offer on a short sale, it’s critical that the Buyers Agent get as much information regarding what has been done thus far. If the homeowner has not even completed the hardship package and been approved for the short sale, or if the agent has not yet submitted the BPO, it could take months. So....my advice is this; unless this is the home of your dreams and you have all the time in the world….move on to something else.

For more information on the process of buying a foreclosure click here.

 

 

 

Financing Options Available to Buy Foreclosures

Most conventional financing and FHA can be used to buy foreclosures. You can still buy homes with “no money down” loans as well, though due to the recent meltdown in the mortgage industry, they are a little harder to find these days. In the case of homes that do not qualify for conventional mortgages because they require major repairs, there is special financing available. These are commonly referred to as “Rehab” Loans. Even homes that require only minor repairs can qualify for these loans as well.  FHA, USDA and private lenders offer them. There are a variety of options with these loans, but most commonly they work like this; The home is appraised for what it would be worth in it’s rehabbed condition. Then the lender works with contractors and inspectors to determine what will be required to rehab the home. The bank loans you the money to buy the home and the money to rehab it folded into one mortgage. Some will also fold in closing costs as well so it’s a “no money down” transaction. Every lender has different criteria for these loans. Some require that the home appraises for at least 10% more in it’s rehabbed condition than the amount of the loan. Some only require that the appraisal in the rehabbed condition equal the total amount of your loan. Some require a down payment. Some are no money down. My personal favorite is the following loan program.



The USDA Rural Development Rehab Loan
The answer to this one:
OK…I put in an offer on a foreclosure for $150,000. The inspection revealed $35,000 worth of work will be needed to get the home in good condition. As a result, I revised my offer to the bank to $115,000 and they accepted it. Now where do I get the $35,000 I need to rehab the property? I have no money for a down payment either. Help!

This loan program is a “guaranteed loan” program like FHA, but it’s better. It will provide you with an amount up to $35,000 for rehab folded into the mortgage to buy the home. Like FHA, the loan is obtained from a commercial lender, but it’s guaranteed by the USDA against default, so you get good interest rate, just like FHA. But unlike FHA there is no down payment required. The rehab money may be used for anything you need to remodel the home, from major repairs to appliances or even carpet and painting. The home is appraised in it’s rehabbed condition. The amount of your loan to buy the home and fold in rehab costs only needs to at least equal the appraisal in it’s rehabbed condition. You may also fold in closing costs. Seller concessions are allowed up to 6%. So it’s truly a “no money down” loan, and there’s no PMI (Private Mortgage Insurance). Example: you buy a foreclosure for $100,000 and determine it will need $25,000 in repairs. You also need $5,000 for closing costs for a total loan amount of $130,000. The home appraises at $140,000 in it’s rehabbed condition. Therefore USDA will give you a loan for at least $130,000 and you may even increase your rehab money from $25,000 to $35,000 if you choose, for a total loan amount of $140,000 and still be within the guidelines. The terms are 30 year fixed rate at current market interest. The qualifications are; an income that does not exceed $89,900 (for a family of four) and a credit score of at least 640. These loans are available only in certain areas of the country that are considered “rural” by the USDA. But since the USDA maps have not changed in many years, areas that were rural 30 or 40 years ago and are now suburbia will often qualify. Check out the USDA maps on their website to see if your area qualifies.

 

Don't Qualify for USDA Rehab Loan? There's Others That Work 

If you don't qualify for the USDA loan because your income is above the threshold, the home requires more than $35,000 in work, or it's not in a location that USDA considers "rural", there's another rehab loan that also works very well. This one is also 100% financing, but unlike USDA, you will be required to pay PMI. There is no limit on income and no limit on the amount of money they will fold into the mortgage for rehab purposes. And no location requirements either. It works like this; the home is appraised in it's rehabbed condition. The lender will fold in the amount you need to rehab it and buy it in one mortgage up to 90% of the appraised value. Example; a home appraises for $200,000 in rehabbed condition. You can buy it in it's present condition for $100,000. The bank will loan you $100,000 to buy it and up to $80,000 to rehab it for a total of $180,000 or 90% of the rehabbed appraisal. It''s a 30 year fixed loan at current market rates depending on your credit score.

With all the foreclosures currently on the market in Michigan and rates remaining low, it's a great time to buy. And with financing options like these...it's easy to build instant equity!

FAQ

How Do I Make An Offer?

First secure the services of a Buyers Agent. This is an agent who must, by law, represent your best interests only, not the best interests of the seller. The Listing Agent is not a Buyers Agent. The Listing Agent is the Sellers agent and must, by law, represent only the best interests of the seller, not you. To secure the services of a Buyers Agent you must sign a Buyers Agency Agreement designating a specific agent to represent you. You do not pay this agent, they are paid from part of the commission charged to the seller. If you do not secure a Buyers Agent thru a Buyers Agency Agreement, that agent must also, by law, represent only the best interest of the seller, even though they are not the actual Listing Agent. So get a Buyers Agency Agreement, it costs you nothing and it protects you as the buyer and the consumer.


How Do I Write The Offer?

Your Buyers Agent will guide you through this process. You must attach a pre-approval letter and a copy of your Earnest Money Deposit (EMD) to your offer (see below).  In most cases, your offer will be written on your Buyers Agents Purchase Agreement. However, in the case of HUD and VA, only their Purchase Agreement can be used.  HUD homes require an online or phone bid thru an authorized HUD agent prior to writing the Purchase Agreement. Some lenders or government agencies will hold onto your offer for 48-72 hours waiting for others to come in. Some, like FannieMae or FreddieMac will send you a “Multiple Offer” bid form if other offers come in before they make a decision, regardless of when yours was received. Some will counter, others, like HUD will simply accept or reject. Some will ask for your “highest best and final” offer right from the start. You will most likely receive a verbal acceptance a few days to a week or more before they will actually return a signed Purchase Agreement to you. If a better offer comes in after they have given you a verbal acceptance, but before they actually sign your Purchase Agreement, they could take it instead of yours and your deal is off. So keep in mind, although you may have a verbal acceptance, you don’t have a deal until they’ve returned your signed Purchase Agreement. And even then, you may still not have a deal until you sign their addendums and return them. The irony of this is that sometimes they will start the clock ticking (for you) with regard to close and inspection deadlines from their verbal acceptance, not their signed acceptance. It doesn’t have to make sense. Wait till you see their addendums! There will usually be a strict time line that the lender or government agency requires for you to get signed docs back to them. They however, can take their time (and often do) and there’s nothing you can do about it.  After your offer is accepted, and they have signed and returned your Purchase Agreement, they will forward their addendums for your signature. Now the real fun begins!  If any language in these addendums contradicts language in your Purchase Agreement (and there will be), the addendums will prevail. These addendums are non-negotiable and cannot be altered in any way. And every one is different depending on which lender or government agency they come from. One thing they will all have in common…pages and pages of tiny type and complex language. Rarely do they make much sense. They will have one set of rules for you, and another very different set of rules for themselves. Example; most lenders or government agencies charge a $50-$100 penalty to the buyers for every day they miss their close date. But the lender can miss the close date for any reason and the buyers do not have the right to charge them anything. It’s at this point, as a buyer, you have to decide….how bad do I want this house?


What is Earnest Money Deposit Anyway?

All offers on foreclosures (and privately owned homes) require an Earnest Money Deposit (EMD). This shows the seller you are a serious buyer. The amount varies, but most lenders will accept around $1,000.00 as an Earnest Money Deposit on a foreclosure. HUD has a sliding scale, based on the price of the home, beginning at $1,000. The check is not deposited until the offer is accepted. Some, like HUD, will require certified funds as EMD on foreclosures. It must go into an escrow account within a specific time frame from accepted offer (depending on your state laws) and is credited back to you at close. If both parties agree in writing to cancel the transaction, the money will be returned to you providing you have met the qualifications for return of the deposit that the foreclosing party has set forth in their addendums or their Purchase Agreement. So be sure to read those carefully before you sign them!


What Else Do I Need To Make An Offer?

You must obtain a “Pre-Approval Letter” from your lender showing the purchase amount and/or mortgage amount they have approved for you. This is the first step, because it tells you what your home buying budget will be. You are not required to take out your loan from the lender that gave you your pre-approval letter. They are simply saying that you have met their lending criteria and should you decide to take out your mortgage with them they’d be happy to welcome you as a customer. So be sure to shop around for the best rates. This letter must be attached to all offers along with a copy of your EMD.

TOMORROW - TIPS ON BUYING A FORECLOSURE; PART FOUR - Getting Financing 

FAQ

 
What about liens on the property? Am I buying those too?

If you buy the home during the redemption period, all liens will still be on the property so a title search is critical before you close. Do not close without clear title.  If you’re taking out a loan to buy the property, your lender will require clear title and title insurance to close and will order those. If you’re paying cash it will be up to you to get the title search done. The buyer traditionally pays for the policy that covers the lender for the amount of the mortgage. The seller traditionally pays for the owners policy. But this is not a traditional type of sale. The foreclosing party may require that you pay for both title policies. If you buy it after it has become a REO, (see “Tips on Buying Foreclosures: Part One”) all other liens and claims are automatically gone, all except IRS liens that is…they supercede everything (of course). If there are any past due property taxes and other assessments, they must be paid in full and brought up to date in order to close. This is often done by the bank or government agency that has the REO. The bottom line….do not close without a title search and title insurance even if you have to pay for it all yourself.

The listing says the property is being sold “as is”, it also says “mold may be present.” Does that mean I’m stuck with buying a home that’s a train wreck?

All foreclosures and some privately owned homes will be listed “as is”. In the case of a privately owned home, it simply means the seller is not willing, or is not in a financial position, to make any repairs you may request. However, they may give you concessions (money back) at close or reduce the price of the home to compensate you for the repairs.
In the case of foreclosures “as is” means they will not make any repairs because repairs hold up closing, and once they accept an offer, they want to close as soon as possible to get it off the books. However, they too may give you concessions at close or reduce the price of the home to compensate for major repairs. If you are coming into the transaction with FHA backed financing, FHA will require certain repairs must be made before close. Some foreclosures will comply and some will not. As a result, not all foreclosures are acceptable for traditional FHA financing. There is however, a special FHA rehab loan that will allow certain repairs to made within 30 days of close. Most foreclosures, especially government properties, will always have a mold warning in every listing and/or addendum, This does not necessarily mean mold is present. (Your inspection will reveal that). But they must put warning language everywhere possible to cover themselves in case mold or other harmful toxins are found in the inspection.


Can I have an inspection before I buy the property? And who pays?

Absolutely! Never buy anything without an inspection! All offers, whether it’s for a privately owned home or a foreclosure should be contingent upon acceptable inspection. (However, in the case of VA foreclosures or Uninsurable HUD homes, the right to cancel due to unacceptable inspection is not allowed.) The process works like this: You make an offer on a home with a Purchase Agreement executed by your Buyers Agent. (See Part Three). The offer contains a clause which states that you have a certain number of days to have the property inspected after the offer is accepted.  If the inspection is unacceptable, you have two choices; first, revise your offer to the lender (or homeowner) to deduct for the repairs that must be made. In the case of the homeowner, you may request that they make the repairs for you. The lender or homeowner then has the right to accept your new offer, counter it, or return your earnest money deposit and call off the deal. Your other option is to simply call off the deal yourself and get your earnest money back. (Remember…you do not have this right with VA foreclosures or Uninsurable HUD homes, or if the lenders addendums specifically forbid it). Who pays? You do. Most home inspectors charge by the square foot. A good ballpark figure is around $300. But it varies by region. This covers the structure itself, plumbing, heating, electrical and appliances. However, septic, well, radon, pest, and mold tests will be extra. A mold test will be required if mold is found during the course of the inspection. This is done to determine what type of mold is present. Occasionally an air quality test may be required and sometimes certain areas of the country require tests for issues that are indigenous only to that region.

TOMORROW: TIPS ON BUYING FORECLOSURES: PART THREE- MAKING THE OFFER

Tips on Buying a Foreclosure- Part One In a Series

Foreclosures are everywhere. And real bargains can be found. But you better know what you’re doing. Understanding the bidding process is critical. Working with an experienced foreclosure agent is also critical. This is very different world than buying from a normal seller.

FAQ

What’s the difference between a foreclosure and an REO?

A foreclosure and a REO are the same thing. But REO designates the end of the foreclosure process.

The beginning of the process is Pre-Foreclosure.

This is when the owners are still current on their payments, but are headed for trouble. During this time they will often list the home and try to sell it before they get behind. However, most homeowners in this position are facing another challenge, they’re “upside down” on their loan. Meaning that they owe more than the home than it’s worth. In such cases, when an offer comes in, the agent will have to negotiate a “short sale” with their lender. That means convince the lender to take less than is owed on the note. The argument put forth to the lender at this stage is; “Take a short sale now…or a bigger short sale later, because if you don’t take this offer, this is going to foreclosure”. Sometimes lenders will accept the offer, and sometimes they won’t. They’re all different. If they don’t, and the owners fall behind in their payments 30-90 days later (depending on the lender), it goes to the next stage.

This is the Sheriffs Sale

The owners are notified that the home will be sold at Sheriff’s Sale on a certain date at the county courthouse. Anyone can bid on a home at a Sheriff’s Sale. The term “Sheriff’s Sale” is really a misnomer. Technically the home itself is not being sold, only the note on the home. What’s happening here is this; the bank is saying “Will somebody please buy this mortgage from us and take our place as the lender?…We want out”. However, since most homeowners owe more than the home is worth, it’s unlikely anyone will be kind enough to pay off the bank to take the note off their hands and replace the bank as the homeowner’s lender. So, the bank buys it back from itself (sounds confusing I know…basically another department at the bank pays off the note and takes over as the “new” lender). Now the foreclosure moves into the next stage.


This is the Redemption Period

Michigan gives a homeowner the right to redeem their property from the bank during this time. The time frame to redeem will be 6 months if the home is on 3 acres or less. It will be one year if it’s on more than 3 acres. They may remain in the home during this time and will probably not be making payments. The homeowner can redeem in one of two ways; either pay off the note and all extra fees and remain in the home. Or sell the home and pay off the note. Once again, if the home is sold during this time it will probably be a “short sale”. If you buy a foreclosure at this stage keep in mind there may be other liens on the property that will have to be paid off in order to close. The title search will reveal all liens on the property. You must have clear title or you do not close. If it doesn’t sell, or the homeowner does not redeem, it goes to the next stage.

Now it’s a REO

If the homeowner does not redeem through a pay-off to remain in the home or a sells it to a new owner, and the redemption period runs out, the bank gets the property back completely. Banks refer to these properties as REO’s which stands for Real Estate Owned. Not a positive thing for a bank to have. Two things will happen now; The owners must leave, and the current listing agent will surrender the home to a new real estate agent designated by the bank as their REO agent. Between the time the owners leave and the new REO agent takes over, the home will sit vacant with the utilities off, and as a result, could suffer damage, and many often do. The time frame for the lender to get the new REO agent to take over the listing and get the property management company over to the home to secure it and winterize it varies widely from a few days to a few months. If the mortgage was insured against default by a third party such as FHA, VA etc. the process takes longer, because they will pay off the lender in full and take over the home, and that process takes time. As a result, the home is much more likely to be vacant for a longer period and thus could suffer damage, because the utilities are off.  As a result, if it has a sump pump, it will fail to go on and the basement will flood, or the pipes will freeze due to the fact the furnace cannot operate. These are the two most common causes of mold in foreclosures.

Tomorrow....Part Two....What about liens and other issues? Am I buying those too?