To understand what a property that is owned by the bank is really all about, you must first understand the process that the real estate has gone through to end up on the lenders balance sheet as REO – or Real Estate Owned.
You see, banks are not in the business of selling real estate – as a matter of fact they are banned by federal banking regulations from engaging in the sale of real estate – banks make loans. Active performing loans are on their balance sheet as an asset while the repossessed, or foreclosed real estate show up as a liability (ironically, we often refer to these homes as ‘Assets’, in the industry).
The process of selling REO property is a complex process that is very different from selling real estate through traditional channels. Unlike a retail seller who typically is looking to gain the most money possible during a sale, the lender/owner has already forfeited a considerable sum of money on a defaulted property during the foreclosure process and must take a tactical initiative to now sell the property in an REO status.
As a successful REO Agent, my job may appear to be to sell the property for the highest amount possible – and yes it’s true that is what the banks want. However; the real value I bring to the table is to minimize any additional loss to the seller.
FIVE STAR INSTITUTE TRAINING
The Five Star Institute offers what many in the industry recognize as the premier and most highly regarded professional designation for REALTORS who specialize in the sale of REO properties. I am currently enrolled in this program so that I can further expand my own skills and showcase my commitment the asset managers who control the flow of REO assignments and therefore my business.
This series of articles is a summary of what I have learned in the Five Star Institute Training seeking the coveted Five Star Certification. The first course is an excellent overview of the REO industry, called “REO From A to Z”. Having nearly two years worth of direct experience in the field of distressed properties, I must admit that most of what I studied in this course was refresher information – information that I had to gather one bit at a time. There were of course, certain nuggets that have already helped me streamline my business and grow with. I highly recommend this course and program to anyone who considers themselves professionals in this very competitive field that only promises to get more competitive as 2008 winds down and we enter the 2009 selling season.
LOAN LIFE CYCLE
When a homeowner becomes delinquent in their home loan (California does not have Mortgage’s – we have loans secured with a Trust Deed) the lender will often start with the COLLECTION process. During the first 60 days of delinquency, the lender will typically get very aggressive and do what they can to bring the loan current.
It should be noted that there are difference between every lender – just as there are differences between every department store chain or every supermarket chain. In the case of the retail stores – they all sell basically the same stuff and in many cases even the same brand. The differences are in how they promote the product, the price point they sell it for and the level of service they provide to their customers. Well lenders are the same way – they all offer U.S. Dollars to buy real estate. What they charge, how they market and the service they provide is different with every lender. They are all bound by the same laws and regulations – but how they implement can be as different as night and day. So, please understand as I address what the lenders do in this series of articles – it is always a typical scenario for a typical lender…whatever that it.
As the loan progresses through the collection department the timeline will usually move the loan into the DEFAULT department. California Governor Arnold Schwarzenegger signed California SB 1137 into law that adds additional requirements for lenders to foreclose on a home that was signed into law on July 8, 2008 for loans made between 2003 and 2007.
Between the law and the new California Civil Code §2923.5. requires that the lender contact or can document their due diligence at contacting the borrower to assess the borrowers financial scenario and explore options at avoiding foreclosure. Although there is no hard number, it is generally seen as adding an additional 30 to 45 days onto the 111 day foreclosure process that had previously been the norm in California.
During this extended foreclosure process, the lender is now required to explore Loss Mitigation options.
Once all of the legal requirements have been met the real estate is sold at a TRUSTEE’S SALE – or Courthouse Auction (not to be confused with public auctions of foreclosed homes held by private companies – typically held in a hotel ballroom). Without a new buyer, the property is then transferred to the foreclosing lender.
Once the lender has the property back, they start the liquidation process – typically by assigning the ‘Asset’ (found in the liabilities column of their balance sheet) to a Servicer or Asset Manager who then picks and assigns the Asset to a Listing Agent, like myself.
So, you can see from the date that the first payment is missed it is very easy for a California homeowner to continue living in the home for 8 or 9 months, perhaps even longer without paying any mortgage, property taxes, HOA fees and only minimal maintenance – if any at all. Not only is the lender taking the property back and selling it at a loss, they have continued carrying costs, rehab costs, legal fees on top of an extended non-performing loan that is already thousands of dollars in arrears.
Now, perhaps you can understand why my primary responsibility to the owners of REO property is to minimize any additional losses and exposure to expensive legal issues.
Blessings to all who read,
John Occhi, REALTOR®
Hemet - San Jacinto Valley
951-927-9473
Servicing THE REO Needs of Asset Managers, Banks and Lending Institutions in the Hemet - San Jacinto Valley, Temecula, Murrieta, Winchester, Wildomar, Menifee, Sun Valley, Perris, Moreno Valley, Romoland, Homeland, Nuevo, Banning, Beaumont, Cherry Valley, Yucaipa, Redlands, Mentone, Loma Linda and throughout South West Riverside County and The Pass Areas of The Inland Empire in Southern California. If you are a buyer, investor, first time home buyer or are just interested in REO real estate, please contact us at the above website or phone number.
This article is part of a series based on my own experience and the lessons taught by the prestigious Five Star Institute in their “REO from A To Z” class that is necessary in order to obtain the coveted Five Star Designation, by far the most respected professional designation a REALTOR can earn in the specialty niche of listing and selling REO properties.
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