Buying 'bank owned' what can I expect?

[Lugnuts]

Originally Posted by Sunshine Rules

Hi Lugnuts,

Regarding your questions as quoted below:

I'm especially interested in marketable vs. insurable title. Due to the whole robo-signing fiasco, banks may not legally be able to convey the properties that they are selling. [SIZE=2]Are title companies insuring over this or do they remain as exceptions to the title policy? If they are exceptions on title policy, isn't the deed you get really a defacto quit claim deed? In the sense that the bank is really selling you their interest in the property rather than the property itself?[/SIZE][SIZE=2] Won't this come back to bite me on the ass later? Perhaps when I go to sell or transfer title to relatives? It's hard for me to see a clear path to title when dealing with a bank foreclosure.[/SIZE]
[SIZE=2][/SIZE]
[SIZE=2][/SIZE]
[SIZE=2]Here is what the real estate attorney I contacted replied:[/SIZE]
[SIZE=2][/SIZE]
[SIZE=2][/SIZE][SIZE=2][SIZE=2]Marketable title is title that is free of clouds or encumbrances for the time limitations allowed by the Florida Marketable Record Title Act. If title is marketable (no clouds back for the defined time period), then the title should be insurable. A REO seller could choose to insure over a cloud and then the title could be insurable but not marketable. If any robo-signing were known to have been done meaning the foreclosure was improper, that could be a claim on title by the previous owner and an inferior interests that would have been improperly forclosed. The problem is the investigation necessary to determine if robo-signing or many other improper things were done in a sloppy foreclosure process (sloppy on the part of the banks and servicers that cut corners and sloppy on the part of the high volume low cost foreclosure mills) will not be done by anyone in a typical REO sale where the REO seller will persuade the buyer to use the REO’s assigned title company. This title company may perpetuate the potential problems by cutting corners, not investigating appropriately, and/or insuring over issues they see. A robo-signing issue could give rise to a claim by the former owner and so could missing liens and mortgages (believe it or not this is not uncommon with the foreclosure mills’ work). If an REO buyer uses a real estate attorney that will do the proper investigation into the foreclosure, then the risk can be reduced substantially. I am not aware of REO’s designated title companies insuring over robo-signing or other issues. I don’t think any lender for the new buyer would allow such exceptions for the new mortgagee title insurance (required for any new mortgage). Certainly, no buyer should accept any such exceptions. The bank often gives a Special Warranty Deed which puts them on the hook (in addition to the title company) for title they convey for any claims made by or though the grantor. It is a little more than a Quit Claim Deed that conveys whatever title is held without warranty that anything is held. Certainly, REO buyers want to be concerned about the quality of the title insurance company insuring their title too, as the various entities that act as grantors for REO may not exist in the near future, leaving little recourse under the deed. Buying an REO is a scary proposition these days.[/SIZE]
[SIZE=2][/SIZE]
[SIZE=2][SIZE=3]Donald W. Scarlett, Jr., Esq.[/SIZE]
[SIZE=3][/SIZE]
[SIZE=3]Judd, Ulrich, Scarlett, Wickman & Dean, PA[/SIZE]
[SIZE=3]2940 South Tamiami Trail[/SIZE]
[SIZE=3]Sarasota[/SIZE], FL 34239
[SIZE=3]941.955.5100[/SIZE]
[SIZE=3]e-mail: donald.scarlett@juddulrich.com[/SIZE]
[SIZE=3]www.juddulrich.com[/SIZE]
[/SIZE][/SIZE]

Very, very helpful. I'm giving you rep points!

Seems to me that the best way to profit in the current Florida RE market is to do your own title search at the recorders office, identify robo signed properties (perhaps a little time consuming but certainly possible with the internet), pay cash for said properties, then contract with Mr Scarlett to sue the pants off the title company and the bank for fraud!!!!! Why I'll be rich I tell you, RICH!!! Ahem. Got a little carried away there....
But seriously, thanks v much for this info Sunshine.

[CTC]

Originally Posted by macyny

I've been following this thread because we are looking for property in Sarasota and am completely confused by the whole process.

Many of the homes in listings are short sales. I understand that is the first step in the foreclosure process. - Yes??

I don't understand the term 'REO' and what that means. A Real Estate Agency now owns the property? What happened to the bank?

When a house is listed as a short sale, how close to listing price should one offer? Is that listing price set by the bank? I don't know how to offer on such a home. I notice some short sales seem to be priced high even though the house has problems...damaged floors, bathrooms, walls. Has that damage been priced in the the list price?

We are trying to avoid dealing with these distressed properties, but sometimes you see homes which are short sales and not listed as such. I discovered some homes which are going to be auctioned, yet the listing doesn't show that. Why is that?

Sorry for all the questions. If someone could answer the question about REO, I would greatly appreciate it. It seems we need to take a course in college to learn about all this!

Thanks in advance,

Macy

No, short sales are not foreclosures. A short sale is when someone tries to sell their property for less then what they owe to the bank. Often times a SS is an option for a homeowner who is trying to avoid foreclosure. My wife and I just closed on a SS. The bank has to approve the price being set by the seller. Often times this can take months. We offered close to full asking price which was eventually accepted.

I looked at both SS's and foreclosures, our SS still had people living in it and was in far better shape than some of the foreclosures I looked at (holes in wall. missing appliances etc)

Get a good agent who has experience before you start really looking at property is my advice-don't deal with the broker yourself. We lucked out and found a great agent who had very good knowledge about the SS process. DM me if you want contact info for our agent.
Good luck

[Sunshine Rules]

Short sales, REOs and foreclosures can be confusing.

Many people refer to all distressed properties as foreclosures. The definition of foreclosure is: a legal process by which a defaulted borrower is deprived of his or her interest in the mortgaged property.

Pre-foreclosure is the time period beginning when the borrower stops paying his/her mortgage and ends when the property is foreclosed upon. This is the time period in which a short sale may occur. Once a borrower has missed at least 3 payments, the lender usually files a Lis Pendens with the clerk of court in which the property is located. Basically, a Lis Pendens is written notice that a suit is pending in a court that concerns the title to the property. Per Realty Trac, the average time from filing of a Lis Pendens notice to the actual foreclosure takes 619 days in FL.

A short sale is when a home is being sold for less than what the current seller owes on the property & the seller does not have sufficient funds to make up the difference at closing.

REO stands for Real Estate Owned, meaning the ownership of the property was transferred involuntarily to the lender through a foreclosure sale. The lender now has title to the property and is selling it directly.

Back to short sales. Homeowners often attempt to do a short sale in order to avoid foreclosure. Often the lender has filed a Lis Pendens and started the foreclosure process on the property. But not always. I recently handled a short sale in which the seller hadn't made a payment in almost 2 years but the lender had not yet filed a Lis Pendens.

To purchase a short sale requires patience. After you sign a purchase agreement with the owner of a short sale property, the seller's lender(s) and/or other lien holders have to approve of the sale before you can close. If there is just 1 lender, it may take up to 2 months to hear back from the seller's lender. If there's more than 1 lender, it can take 4 months or longer to hear from all lien holders. Sometimes a short sale has a tentative approval by the lender at a certain price, so the approval process may take less than 30 days.

You also need to have your financing in order before you submit an offer. Lenders like all cash offers. They will consider buyers obtaining mortgage if you are pre-approved with your lender (not just pre-qualified), the bigger your down payment the better, and your closing time should be flexible.

Contingencies are also important in getting a short sale offer approved. The less contingencies you include in the contract, the better. If you have to be closed and move out of another house/condo/apartment by a certain deadline, a short sale may not work for you.

It's also in your best interest to do a preliminary search of the clerk of court records on a short sale property you're interested in to see if there are multiple lien holders such as 2nd or 3rd mortgage, equity lines of credit, real estate tax liens, mechanic's liens, HOA liens, etc. The more liens there are, the less likely that contract will get to the closing table as ANY of the of the lien holders can stop the sale at any time by refusing to agree to a settlement.

Short sale listings are typically priced at the lower end of the fair market value. Fair market value is the price a buyer is willing to pay and a seller willing to accept for a property under reasonable and ordinary conditions in an arms length transaction. Sometimes agents list short sales at unrealistically low prices to entice a buyer to submit an offer. Your real estate agent should be able to help you determine the home's fair market value by doing a CMA (comparative market analysis), similar to a BPO (broker price opinion).

If you find a short sale property that you like enough to write an offer on, you should have your agent ask the listing agent if the short-sale package is ready for submission to the lender and the status of negotiations with the lien holder(s). In other words, has the listing agent done his/her short sale homework.

You would make an offer in writing to the home owner, typically on an As Is (with right to inspect) contract form, either FAR or FAR-BAR. The offer will include a Short Sale Addendum. Once the seller has accepted your offer, you are bound to that contract to purchase the home according to the terms written in the contract. Your short sale addendum will stipulate how long you the buyer are willing to wait for seller's lender(s) approval. It will also indicate whether the seller can keep the listing active in the MLS and continue to submit offers to his/her lender(s) under short sale approval is obtained. The contract is signed by you the buyer and the seller, not the lender(s). The lender(s) only approve of the contract.

The most common reasons why a short sale fails to close are:
incomplete short-sale package submitted to the lender(s)
short-sale package not submitted properly so sits in a pile on a desk
the offer is too low
the buyer's offer is not strong enough in terms of financing, terms or contingenties
the lender(s) took too long and the buyer backed out
the loan was sold to investors who won't approve the short sale
junior lien holders say no

It's very important if you are pursuing a short sale that your agent gather as much information as possible and disclosure as to the short-sale process by the listing agent up front so to help you determine the odds of that short sale transaction closing.

I know this is a lot of information to absorb, your agent should be able to sit down with you and go over the entire process until you are comfortable with it.

[Lugnuts]

Originally Posted by Sunshine Rules

Hi Lugnuts,

Regarding your questions as quoted below:

I'm especially interested in marketable vs. insurable title. Due to the whole robo-signing fiasco, banks may not legally be able to convey the properties that they are selling. [SIZE=2]Are title companies insuring over this or do they remain as exceptions to the title policy? If they are exceptions on title policy, isn't the deed you get really a defacto quit claim deed? In the sense that the bank is really selling you their interest in the property rather than the property itself?[/SIZE][SIZE=2] Won't this come back to bite me on the ass later? Perhaps when I go to sell or transfer title to relatives? It's hard for me to see a clear path to title when dealing with a bank foreclosure.[/SIZE]
[SIZE=2][/SIZE]
[SIZE=2][/SIZE]
[SIZE=2]Here is what the real estate attorney I contacted replied:[/SIZE]
[SIZE=2][/SIZE]
[SIZE=2][/SIZE][SIZE=2][SIZE=2]Marketable title is title that is free of clouds or encumbrances for the time limitations allowed by the Florida Marketable Record Title Act. If title is marketable (no clouds back for the defined time period), then the title should be insurable. A REO seller could choose to insure over a cloud and then the title could be insurable but not marketable. If any robo-signing were known to have been done meaning the foreclosure was improper, that could be a claim on title by the previous owner and an inferior interests that would have been improperly forclosed. The problem is the investigation necessary to determine if robo-signing or many other improper things were done in a sloppy foreclosure process (sloppy on the part of the banks and servicers that cut corners and sloppy on the part of the high volume low cost foreclosure mills) will not be done by anyone in a typical REO sale where the REO seller will persuade the buyer to use the REO’s assigned title company. This title company may perpetuate the potential problems by cutting corners, not investigating appropriately, and/or insuring over issues they see. A robo-signing issue could give rise to a claim by the former owner and so could missing liens and mortgages (believe it or not this is not uncommon with the foreclosure mills’ work). If an REO buyer uses a real estate attorney that will do the proper investigation into the foreclosure, then the risk can be reduced substantially. I am not aware of REO’s designated title companies insuring over robo-signing or other issues. I don’t think any lender for the new buyer would allow such exceptions for the new mortgagee title insurance (required for any new mortgage). Certainly, no buyer should accept any such exceptions. The bank often gives a Special Warranty Deed which puts them on the hook (in addition to the title company) for title they convey for any claims made by or though the grantor. It is a little more than a Quit Claim Deed that conveys whatever title is held without warranty that anything is held. Certainly, REO buyers want to be concerned about the quality of the title insurance company insuring their title too, as the various entities that act as grantors for REO may not exist in the near future, leaving little recourse under the deed. Buying an REO is a scary proposition these days.[/SIZE]
[SIZE=2][/SIZE]
[SIZE=2][SIZE=3]Donald W. Scarlett, Jr., Esq.[/SIZE]
[SIZE=3][/SIZE]
[SIZE=3]Judd, Ulrich, Scarlett, Wickman & Dean, PA[/SIZE]
[SIZE=3]2940 South Tamiami Trail[/SIZE]
[SIZE=3]Sarasota[/SIZE], FL 34239
[SIZE=3]941.955.5100[/SIZE]
[SIZE=3]e-mail: donald.scarlett@juddulrich.com[/SIZE]
[SIZE=3]www.juddulrich.com[/SIZE]
[/SIZE][/SIZE]

As an out-of-state buyer interested in purchasing REO properties, I'd like to thank Sunshine Rules for the info in this thread.

I've read this a couple of times as I'm trying to understand the risks of buying REO. It's astonishing to me that any title insurance company would insure any title of any foreclosure-whether it was done correctly or not- the taint of robo-signing is there as a potential cloud on title.

What's even more surprising to me is this:

The bank often gives a Special Warranty Deed which puts them on the hook (in addition to the title company) for title they convey for any claims made by or though the grantor.

It seems like the bank and the title company are accepting liability for a faulty conveyance, at least in some cases. If a judge were to set aside the trustees sale and ownship were to revert back to the original owner and their lender, then I'd have to file a claim for my interests against the title insurance company. They would deny my claim because that's what they do, and I'd have to hire a lawyer to sue them. Of course, if the title company is being overwhelmed by claimants due to the volume of robo signers, they could always just shut their doors and declare bankruptcy. I guess I could try to sue the bank at that point but they would probably say the liability belongs to the defunct title insurance company. Worse yet, what if there is no bank? What if the loan was bundled as a securities package (triple A, OF COURSE!!!!!!!) and sold off to a bank in the EU or a goat farmer in Romania?

Another risk that comes to mind is that even if you can get a title insurance policy for a property with a foreclosure on the chain of title, will you be able to get title policy ten years from now? I mean, as the extent of the robo-signing/foreclosure mill fiasco becomes more well known, will future title insurance companies be willing to insure them? If I can't get title insurance ten years from now, how am I going to sell my REO property? It wasn't so long ago that flood/hurricane insurance in Florida was reasonable-look at it now.

I'm really just thinking out loud here. I guess I don't have a question. Except for this: have I missed anything? Are there other risks involved in buying REO? I'm just stewing over worst case scenarios so I know what to expect if things get ugly. Last week I was standing in my backyard and I almost got struck by lightning. Life is full of risk, I get that, and I'll probably still buy REO in Florida. I'm just trying to understand all the pitfalls so I go into this with my eyes wide open.

[Sunshine Rules]

Hi Lugnuts,

In your most current post you said:

I'm just trying to understand all the pitfalls so I go into this with my eyes wide open.


If you go into purchasing an REO or short sale with your eyes wide open, knowing what pitfalls may occur and what you can do to help prevent them, then you have a much better chance of making a successful purchase. Not all lenders are involved in the robo-signing scandals. Not all REO homes have title issues. But knowing what could potentially happen and how you can protect yourself as a buyer is a positive thing.


The more knowledge you have as a buyer, the better.