anaheimhousing.com
After a moratorium on foreclosures due to the Covid-19 pandemic, foreclosures are now increasing. As an outcome, we can anticipate to see a boost in the variety of REO residential or commercial properties offered on the market in the coming months.

Whether you're a fairly brand-new real estate agent or one who's remained in the business for a while, you probably might utilize a refresher on these bank-owned homes.

Our resident REO expert, Jeff Underwood, shares what real estate agents need to understand about REO residential or commercial properties in Alabama.

What is an REO residential or commercial property?

Simply put, an REO residential or commercial property is realty that is owned by a bank or lending institution after stopping working to cost a foreclosure auction. But to truly comprehend REO residential or commercial properties, you first require to understand the foreclosure procedure.

The Foreclosure Process

When a private with a mortgage stops making payments on that mortgage for any factor, the foreclosure process will begin. The mortgage arrangement will include language about when the bank can start this procedure. Typically, a lender will not start the foreclosure procedure till the customer has actually missed out on four consecutive payments.

Not all residential or commercial properties that enter the foreclosure process are in fact foreclosed upon. Jeff Underwood, managing attorney at South Oak Title & Closing in Auburn, states, "In a lot of cases, the mortgage is reinstated or the lender will work out loss mitigation options to avoid foreclosure. A debtor who submits for Chapter 13 bankruptcy will also halt the foreclosure procedure."

This process looks different in every state. Underwood explains, "Alabama is a nonjudicial state. This suggests that the bank does not need to submit a claim against the defaulted mortgagor to foreclose. Instead, the bank sends out a series of notifications that notifies the mortgagor that they remain in default and provides details about reinstatement. Failure to do so will lead to a foreclosure sale." Other states, such as Florida, require loan providers to submit a claim versus the mortgagor in state court to foreclose.

In Alabama, notices about the upcoming foreclosure sale are also released in the county newspaper for 3 weeks. If the bank or lender is the high-bidder or just purchaser at the foreclosure sale, this residential or commercial property becomes "property owned", or an REO residential or commercial property.

Selling an REO residential or commercial property

Jeff Underwood says, "Lenders aren't in business of keeping these residential or commercial properties. Their objective is to sell the home and recoup their losses from the foreclosure. After the foreclosure sale, the residential or commercial property will go on the market as an REO residential or commercial property." The loan provider sends a recommendation for this residential or commercial property to both a property brokerage and a title company.

Listing Process for REO residential or commercial properties

Listing an REO residential or commercial property for sale is really similar to noting any other residential or commercial property, with a couple of key differences. There's still a sign in the lawn, a listing on the MLS, and photos of the residential or commercial property. The broker's goal is to discover a purchaser for the residential or commercial property. But instead of an individual customer, the broker represents a loan provider. On the MLS, this residential or commercial property will be designated as bank-owned.

Underwood says, "These residential or commercial properties might not look like a typical home that's market-ready. We had one REO residential or commercial property where the previous owner took everything out of the house, consisting of sinks and banisters. The bank will work with a company to tidy things up and make sure things are working, however buyers will not discover a staged, upgraded home."

Lenders wish to offer REO residential or commercial properties for fair market value as rapidly as possible, so pricing is figured out by getting a BPO, or broker price opinion. Two real estate agents will provide their viewpoint on the marketplace price of the residential or commercial property, and after that these viewpoints are balanced to obtain the market price. If the residential or commercial property suffers on the market, the bank will start dropping the cost in incremental portions to find a buyer.

Title Process for REO residential or commercial properties

When the title company gets the referral for an REO residential or commercial property, they will start a title search, just as they would for any other residential or commercial property. "We do this before the residential or commercial property is noted for sale, and just like any title search and exam, we're trying to find any potential concerns so that we can provide a clear title to the purchaser," Underwood discusses.

If the title is clear, this file is all set for when the residential or commercial property goes under contract. If there are problems that require to be addressed such as judgments, encumbrances, or liens, the title business will clear the title so that it's all set for a future purchaser. Once the residential or commercial property goes under contract, all that's needed is an update to title.

Common Title Issues with REO Properties

Several typical title problems can occur with REO residential or commercial properties. Tax redemption problems are particularly common. In Alabama, taxes are paid in arrears. If they're not paid by December 31, they go through penalties and interest. If taxes are still unpaid by April, the county will have a tax sale in May. In the majority of cases, the county is the high bidder. But in other cases, a 3rd party will buy the tax certificate.

Underwood says, "If the county owns the tax certificate, solving this is a quite uncomplicated procedure. But if it's owned by a 3rd party, it can get made complex." To redeem from a private, a bank is needed to pay the overdue taxes, penalty, interest, along with the worth of any enhancements on the residential or commercial property. In some circumstances, there can be a prolonged settlement process to remove this tax lien.

Encroachment issues are likewise typical with REO residential or commercial properties. Residential or commercial property lines aren't always clearly marked, which is why studies are an essential part of the title search and examination. Underwood discusses, "An encroachment is any structure that exists on a next-door neighbor's land or residential or commercial property - a fence, a shed, a mobile home, or perhaps part of a home or barn." It can be complicated to clear these concerns and in some cases, a quitclaim deed might be needed.

And similar to any other residential or commercial property, we can discover any variety of other title concerns. Missing deeds, deeds in the back chain of title that do not have marital status, and other encumbrances can also be discovered throughout the title search and exam. Title companies experienced with REO residential or commercial properties know exactly which concerns to search for and how to address them to present REO buyers with a clear title.

Owner's title insurance protects homebuyers from surprise threats to their title after purchase. An improved owner's policy might be advised for individuals who acquire an REO residential or commercial property. But despite the policy, REO residential or commercial property buyers must always be aware of laws worrying the right of redemption.

Right of Redemption Laws

Individuals, including the or heirs of the debtor, have the right to redeem or buy back a foreclosed residential or commercial property for up to a year after the foreclosure sale. Underwood discusses, "To redeem a foreclosed residential or commercial property, the redeeming party must pay the quantity of the foreclosure quote, interest, and other charges consisting of taxes, insurance, and repairs."

"Because foreclosure sales can occur reasonably quickly in Alabama, the redemption period is longer than in a lot of states. For mortgages stemmed before 2016, that redemption period is a year. For mortgages come from after January 1, 2016, the redemption duration is reduced to 180 days."

He continues, "Redemptions of foreclosed homes are really unusual, however anybody buying an REO residential or commercial property needs to work with an attorney who understands and comprehends the law." These laws vary from one state to another and can change, so always consult your closing attorney with specific concerns about the right of redemption.

Buyers purchasing an REO residential or commercial property before the redemption period expires need to be conscious that owner's title insurance will never ever provide affirmative protection over the right of redemption. For cash purchasers, this will be listed as an exception in Schedule B-2 of the owner's title insurance plan for the duration of the redemption period.

Lenders supplying funding for REO purchases will typically need affirmative coverage for the staying redemption period. Options, such as a bond, exist if the loan amount depends on 30% higher than the foreclosure quote, but buyers must understand that affirmative protection for the remaining redemption period only safeguards the loan provider.

The Future of REO Properties

Due to the pandemic, a moratorium on foreclosures remained in location up until November 2021. As this moratorium has raised, loan providers have actually executed loss mitigation treatments to keep people in their mortgages and assist them retain their residential or commercial properties. However, if loss mitigation methods are unsuccessful, the foreclosure process starts.

Underwood says, "Foreclosure starts are up 39% over the last quarter, and we're anticipating to see a boost in these as the year progresses. Starting in the third quarter of this year, we'll begin to see a higher-than-normal portion of REO residential or commercial properties on the marketplace. It won't be like it was in 2008, however it will certainly be more than what we're used to seeing."

There's no need for real estate agents to be intimidated by REO residential or commercial properties. As more of these residential or commercial properties appear in the MLS, real estate agents who comprehend the subtlety of buying a bank-owned home are much better geared up to serve their customers.

At South Oak Title and Closing, we enjoy partnering with real estate agents to assist them better serve their clients. Whether you have specific concerns about working with REO residential or commercial properties or simply need an REO expert in your corner, we're here for you. Contact us with your questions today.

Jeff Underwood

Jeff is a Birmingham native and graduate of the Birmingham School of Law. He has actually invested years working with banks, loan providers, and REO residential or commercial properties through his time leading the REO department at a Birmingham law practice. Jeff is married and has 2 children: one current graduate and one current trainee at Auburn University.

Jeff Underwood is the Managing Attorney at South Oak Title & Closing in Auburn.

This post is meant to provide general information about REO residential or commercial properties in Alabama and should not be considered legal advice. Laws worrying REO residential or commercial properties also vary from one state to another. Please consult your regional lawyer with questions.