After a moratorium on foreclosures due to the Covid-19 pandemic, foreclosures are now on the rise. As a result, we can expect to see a boost in the variety of REO residential or commercial properties available on the marketplace in the coming months.

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

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

What is an REO residential or commercial property?

Put simply, an REO residential or commercial property is property that is owned by a bank or loan provider after stopping working to offer at a foreclosure auction. But to truly understand REO residential or commercial properties, you first need to comprehend the foreclosure procedure.

The Foreclosure Process

When a specific with a mortgage stops making payments on that mortgage for any reason, the foreclosure process will begin. The mortgage agreement will consist of language about when the bank can begin this procedure. Typically, a lending institution won't start the foreclosure process until the customer has actually missed out on four consecutive payments.

Not all residential or commercial properties that get in the foreclosure procedure are actually foreclosed upon. Jeff Underwood, handling lawyer at South Oak Title & Closing in Auburn, states, "In many cases, the mortgage is renewed or the lender will work out loss mitigation choices to avoid foreclosure. A debtor who submits for Chapter 13 insolvency will also halt the foreclosure process."

This process looks different in every state. Underwood describes, "Alabama is a nonjudicial state. This indicates that the bank does not have to submit a lawsuit versus the defaulted mortgagor to foreclose. Instead, the bank sends out a series of notifications that informs the mortgagor that they are in default and provides info about reinstatement. Failure to do so will lead to a foreclosure sale." Other states, such as Florida, require lenders to submit a suit versus the mortgagor in state court to foreclose.

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

Selling an REO residential or commercial property

Jeff Underwood states, "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 out a recommendation for this residential or commercial property to both a real estate 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 few key distinctions. There's still an indication in the backyard, a listing on the MLS, and images of the residential or commercial property. The broker's objective is to find a purchaser for the residential or commercial property. But rather of a specific customer, the broker represents a loan provider. On the MLS, this residential or commercial property will be designated as bank-owned.

Underwood states, "These residential or commercial properties might not look like a common home that's market-ready. We had one REO residential or commercial property where the previous owner took whatever out of the house, consisting of sinks and banisters. The bank will employ a company to tidy things up and make certain things are working, however purchasers won't find a staged, updated home."

Lenders wish to offer REO residential or commercial properties for reasonable market price as quickly as possible, so prices is figured out by acquiring a BPO, or broker cost opinion. Two real estate agents will give their viewpoint on the marketplace rate of the residential or commercial property, and then these viewpoints are balanced to acquire the list rate. If the residential or commercial property suffers on the market, the bank will begin dropping the cost in incremental percentages to discover a buyer.

Title Process for REO residential or commercial properties

When the title company receives the referral for an REO residential or commercial property, they will initiate a title search, simply as they would for any other residential or commercial property. "We do this before the residential or commercial property is listed for sale, and as with any title search and examination, we're searching for any possible problems so that we can provide a clear title to the purchaser," .

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

Common Title Issues with REO Properties

Several common title problems can develop with REO residential or commercial properties. Tax redemption concerns are particularly typical. In Alabama, taxes are paid in defaults. If they're not paid by December 31, they undergo charges and interest. If taxes are still unsettled by April, the county will have a tax sale in May. In many cases, the county is the high bidder. But in other cases, a 3rd party will purchase the tax certificate.

Underwood says, "If the county owns the tax certificate, resolving this is a pretty simple procedure. But if it's owned by a 3rd party, it can get complicated." To redeem from an individual, a bank is required to pay the delinquent taxes, charge, interest, as well as the value of any enhancements on the residential or commercial property. In some scenarios, there can be an extended settlement procedure to remove this tax lien.

Encroachment problems are likewise typical with REO residential or commercial properties. Residential or commercial property lines aren't constantly plainly delineated, which is why surveys are a needed part of the title search and examination. Underwood describes, "An advancement is any structure that exists on a neighbor's land or residential or commercial property - a fence, a shed, a mobile home, or perhaps part of a house or barn." It can be complicated to clear these problems and in many cases, a quitclaim deed may be needed.

And as with any other residential or commercial property, we can discover any number of other title issues. Missing deeds, deeds in the back chain of title that lack marital status, and other encumbrances can likewise be discovered throughout the title search and exam. Title companies experienced with REO residential or commercial properties understand precisely which issues to look for and how to resolve them to present REO purchasers with a clear title.

Owner's title insurance coverage secures property buyers from hidden dangers to their title after purchase. An improved owner's policy may be advised for individuals who acquire an REO residential or commercial property. But despite the policy, REO residential or commercial property buyers must constantly understand laws worrying the right of redemption.

Right of Redemption Laws

Individuals, consisting of the foreclosed debtor or heirs of the debtor, deserve to redeem or redeem a foreclosed residential or commercial property for as much as a year after the foreclosure sale. Underwood describes, "To redeem a foreclosed residential or commercial property, the redeeming celebration needs to pay the amount of the foreclosure bid, interest, and other charges including taxes, insurance coverage, and repairs."

"Because foreclosure sales can take place fairly rapidly in Alabama, the redemption period is longer than in many states. For mortgages came from before 2016, that redemption period is a year. For mortgages originated after January 1, 2016, the redemption duration is shortened to 180 days."

He continues, "Redemptions of foreclosed homes are extremely rare, however anyone buying an REO residential or commercial property needs to deal with an attorney who understands and understands the law." These laws differ from one state to another and can alter, so always consult your closing attorney with particular concerns about the right of redemption.

Buyers acquiring an REO residential or commercial property before the redemption duration expires requirement to be mindful that owner's title insurance coverage will never supply 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 duration.

Lenders supplying funding for REO purchases will generally need affirmative protection for the staying redemption duration. Options, such as a bond, exist if the loan quantity depends on 30% higher than the foreclosure quote, however buyers need to comprehend that affirmative protection for the remaining redemption duration just secures the loan provider.

The Future of REO Properties

Due to the pandemic, a moratorium on foreclosures was in location until November 2021. As this moratorium has actually lifted, lenders have actually carried out loss mitigation treatments to keep individuals in their mortgages and help them keep their residential or commercial properties. However, if loss mitigation techniques are unsuccessful, the foreclosure process starts.

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

There's no requirement for real estate agents to be daunted by REO residential or commercial properties. As more of these residential or commercial properties appear in the MLS, real estate agents who comprehend the nuance of buying a bank-owned home are much better equipped to serve their clients.

At South Oak Title and Closing, we like partnering with real estate agents to help them much better serve their clients. Whether you have specific concerns about dealing with REO residential or commercial properties or simply need an REO professional 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 decades working with banks, lenders, and REO residential or commercial properties through his time leading the REO division at a Birmingham law firm. Jeff is wed and has 2 daughters: one recent graduate and one present trainee at Auburn University.

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

This article is planned to supply basic information about REO residential or commercial properties in Alabama and need to not be thought about legal advice. Laws worrying REO residential or commercial properties also differ from one state to another. Please consult your local attorney with concerns.
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