Frequently Asked Questions about Foreclosure
Q. What is a foreclosure?
When a secured creditor, usually a bank, attempts to recover monies owed to them based on a promissory note by selling the collateral. In more simple terms you have probably borrowed money from a bank or mortgage company in order to purchase or refinance a home. In exchange for lending you the money, you made a promise that if you could not pay them back they could take the house. I will refer to the events associated with these actions as the foreclosure process.
Q. Can the bank just come and kick me out of my house?
No. Only an order of the court can force you to leave your home. Ultimately you may be evicted but there are procedures within the court system that the mortgage holder must follow first for the foreclosure and then another set for the eviction.
Q. Can you explain some of the steps in the foreclosure process?
In South Carolina it works like this. (Other states may have similar procedures but almost all states have a fairly unique system of foreclosure. If you are already in the foreclosure process you would be well advised to consult with an attorney that is familiar with the laws in your state.)
Customer misses mortgage payment.
Formal Legal Foreclosure Process
Bank sends by sheriff or by certified mail Notice of Intent to Foreclose.
Q. How long does this process usually take?
From the time you miss your first payment to the final foreclosure sale its not uncommon for six months or more to pass. In some states this could be more and in others considerably less. Texas residents could find the foreclosure process completed in only around 45 days. It will also depend a great deal on your mortgage holder and how aggressively they pursue your case.
Q. Where can I find foreclosures?
Do not go onto a website and pay for a list. Most of the time, these are outdated properties that sold months ago. The “free lists” marketed by real estate companies is a way to get you in the door. The best way to identify these properties is to pair yourself with an experienced agent.
You can, also, watch the county auction list to see what is coming through the courthouse auction. You can either buy at the courthouse or wait till the home is put back on the market by the lender. Buying a foreclosure at the auction is not for the amateur, I strongly suggest that you have an expert buyers agent. It can be lucrative, however, this is for experienced buyers and usually require CASH Funds. Click here for county F/C lists. (Cara I can rewrite the top, the URL is for this and under this tab – (http://www.marshallwalker.com/charleston-foreclosures.html)
Q. How soon will the Seller respond?
List Agents have no control over the REO sellers decision-making process. It is likely they will respond in 2 to 5 days. Please be patient! The listing agent will notify your agent immediately when they get a response. Some sellers do not look at offers until the property has been on the market for 5 to 14 days.
Q. What if there are Multiple Offers.
If there are multiple offers, the bank will typically verbally counter all with “highest and best”. At this point, you will want to give your very best offer, depending on the level of interest in the property. The seller will likely not counter after that. PLEASE read the multiple offer notification completely and be sure you understand all terms.
Q. It looks like the Seller did not sign the Counter Offer, What does that mean?
You may receive a Seller’s Counter Offer without the sellers signatures or you may only receive the counter by voice or email. These forms of counter offer are generated by the sellers Asset Manager or the outsource company by a counter worksheet to your agent Once an offer is accepted, the entire “package” is sent to the REO seller for signatures. This includes the buyer’s signature on any counter offer addendum. Most REO sellers do not provide these addendums until all terms have been agreed to.
Q. Are these verbal agreements binding?
NO! Once you are informed that your offer is accepted, it is imperative that all required forms are sent to the asset manager immediately for seller signatures. It is not ratified until your agent has the seller signed contract back in their hand. Asset managers/seller gives the “ok” and then go to their managers for signatures. (It is highly unlikely to have an Asset Manager “un-accept” a verbally accepted offer but it can happen. Just imagine if another aggressive buyer with an educated and experienced buyers agent places a substantially higher offer after your offer has been verbally accepted? Obviously the seller is going to want to minimize their loss and take the higher offer.)
IF YOU ARE NOTIFIED THAT YOU HAVE AN ACCEPTED OFFER, PLEASE FORWARD THE OFFER TO YOUR LENDER SO THEY MAY BEGIN THE LOAN PROCESS. AT THIS POINT THE CONTRACT MAY NOT BE SIGNED BY SELLER, AND IT MY BE A FEW DAYS OR LONGER BEFORE RECEIPT OF A FULLY RATIFIED CONTRACT. IF YOUR LENDER HAS A PROBLEM WITH THAT, INFORM THEM THAT THIS IS AN REO SALE. THAT SHOULD SATISFY THEM IF THEY ARE FAMILIAR WITH THE PROCESS. IF NOT, HAVE THEM CALL YOUR AGENT. Despite any delays in returning the contract the bank does expect you to make the contracted close date. Any delays may cause you, the buyer to pay a penalty.
HINT - make sure your loan pre approval identifies the property you are purchasing AND has your names spelled the exact same way the contract reads. For example if you use your middle name or initial on the first line of the contract you must use the middle name or initial on all documents. The property will be deeded the same way the contract reads.
Q. Can I do an extension?
The bank looks closely at the date of closing in the contract. If closing does not occur on or before the contracted closing date, you may/willl be charged a fee for every extra day that the closing is delayed. Your agent should stay on top of your lender and inspections to help move along.
Q. Can I renegotiate after my offer has been accepted?
The REO Seller will not normally negotiate after they accept your offer. Negotiate all terms prior to acceptance to minimize problems during escrow. Sellers appreciate serious Buyers. Please be absolutely sure you are ready and willing to go through with the purchase. Do not use inspections as a strategy to lower the contract price - it will not work.
Can I throw the seller a "Low Ball" offer? Avoid writing significantly low or questionable offers. We understand your desire to get a “Super Deal”. Unless you can document why the Seller should take significantly less than the asking price it would be foolish to write the offer - you may even alienate the asset manager assigned to the property.
Hint -The Seller has at least two different Broker Price Opinions (BPOs) and at least one full appraisal to determine market value - most foreclosures are priced to be ahead of a declining market and already represent a discount of on average 20-45% below current market value.
REO SELLERS ARE TRULY NOT INTERESTED IN LOW BALL OFFERS OR BUYERS ATTEMPTING UNLAWFUL FLIPS OR “SHADY” DEALS.
Hint - Buyers and seller please make note that the FHA has guidelines that may restrict a buyer when purchasing a REO rehab resale. Call Marshall if you have any questions about this.
Q. Earnest Money Funds: You must have earnest funds available in your bank. Many REO sellers will require that you overnight FEDEX funds to their title company once the contract is ratified. Be prepared to send these funds the same day of receiving the title company name information from your Realtor. Not as common anymore, but another method REO sellers use is having the listing broker holding earnest money - if this is the case make sure your agent is given the earnest money check when the offer is written. Any delays in depositing the earnest money can also jeopardize the entire transaction.
While you may be anxious to send in the buyer’s deposit check to escrow, the Listing Agent MAY NOT HAVE this information prior to receiving the documents back from the bank. You will be notiﬁed when the list agent is informed whom to use.
Q. Where can I get a property disclosure form? REO sellers are exempt from most seller Disclosure requirements, so there may be no disclosure.The asset manager has never seen the home and has no idea how old the roof is, or if everything is working . As a result we have NO information speciﬁc to the property. The asset manager MAY generate disclosures specific to the REO seller once negotiations begin which generally include Mold, lead paint and sometimes Chinese dtywall disclaimers and waivers of seller liability. If generated these MUST be signed and returned immediately.
Q. Lead Based Paint? You may ﬁll out a lead based paint addendum, but generally the seller will have no knowledge of any lead paint contamination. I have never had a REO seller order a test to be able to provide results. If a seller is required by federal law to provide a lead based paint disclosure they will generally provide one as part of their addendum package.
Q. Who chooses the Escrow and Title Company? - The reality is, when buying a bank or corporate owned home there are “gives and takes”. One of the items that you will need to be ﬂexible about is that the bank will, more than likely, want to choose the title and escrow companies. This is due to the fact that they have had signiﬁcant amounts of title work already completed done during the Foreclosure process. The REO seller may even offer discounted fees to use their closing company. Ask your buyers agent to verify - ESCROW COMPANY CONTACT INFORMATION USUALLY COMES WITH THE SIGNED DOCUMENTS FROM THE SELLER.
I understand that the REO seller wants me to use their closing title company but can I secure my own representation to close? YES! - As buyers agents we strongly recommend that a buyer have their own representation. With the news full of ‘wrong-full foreclosure” and “robo-signing” it is our opinion that it is imperative that a buyer be represented by an attorney of their choice. HOWEVER, many REO sellers contract addendum's specifically address this by requiring you to use their attorney. This is simply overcome in most cases but being pro-active and naming your choice of closing attorney in the original offer - PLEASE MAKE SURE THIS ATTORNEY is highly experience in closing REO sales. An experience REO closing attorney will make sure that new title and lien searches are performed as soon as the contract is submitted to them and again just prior to closing. KEEP in MIND all TITLE INSURANCE Policies are not created equal - this is a VERY IMPORTANT aspect of closing - make sure that the policy written for your new home is an enhanced policy which will give you very important additoional coverage - be sure to ask your closing attorney the differences in policies. ( example- if the REO seller succeeds in having you use their title company do you think they will choose to issue an more expensive ENHANCED policy or a cheaper policy ? Do you think they will order a new comprehensive title search or choose to “update” their existing title review?)
Time frames? Generally you will have 30 (for cash) to 45 days (financing) from mutual acceptance (even if verbal) to close the transaction. Often the proposed closing date on the original offer is unrealistic due to the elongated negotiation and acceptance process with the REO departments. The Asset Manager knows that you can’t close in a week and a half (unless your offer is cash). They are not here to work against you. Asset managers know that appraisals, inspections and the loan process take time. They will assume that you have taken the time prior to making an offer to become pre-approved for the loan and that there will be no trivial delays beyond the 30 to 45 day closing period. Read the Bank Addendum carefully – there is often a per diem late fee assessed for tardy closings. The bank will not suffer delays due to your lender not performing in a timely manner. Begin your inspections upon being alerted that your offer is accepted. PLEASE MAKE SURE THAT PRIOR TO WRITING AN OFFER THAT YOUR LENDER HAS PULLED YOUR CREDIT ,VERIFIED YOUR INCOME (PAY STUBS) AND ASSETS (BANK STATEMENTS) - many lenders are not doing this prior to writing your letter of pre-approval - if your pre-approval letter is subject to credit, income or asset verification it is not worth the paper it is written on. If your lender tells you that they don't or won’t do this prior to having a contract in hand you need a new lender - SERIOUSLY- we can recommend several loan officers who are highly experience in REO purchase financing.
REO sellers often look for a letter of pre-approval from a preferred loan officer - (for example Bank of America requires a letter of pre-approval from a Bank of America loan officer) - while you may not choose to actually use this Loan Officer it will make your offer much stronger to have this letter when yor offer is presented presented - you may even get a pleasant surprise when you see the rate and /or closing costs associated with using the preferred lender.
Can I do Inspections? In most REO sales you have the right to fully inspect the property within the frame of the purchase agreement. The REO Seller will not order or pay for any inspections. Some sellers (few) will not provide utilities for inspections. Most sellers require the buyer to de-winterize the home for inspection. It may also be the buyer’s responsibility to re-winterize the property. This may cost between $150-200. If this is the case we can give you our preservation companies information to have this performed. DO NOT ASK THAT THE SELLER PAY FOR CL-100 PEST INFESTATION REPORT - they will not pay for this - make sure that you ask if a previous report is available - the seller may have ordered an inspection as part of the pre-marketing phase of the listing.
How do we set up inspections? It is Highly Recommended that you give the list agent 3 BUSINESS DAYS NOTICE PRIOR to scheduling your inspection. Some utilities (such as electricity) may be be on prior to your making an offer; others will not (such as gas or propane). The Listing Agent will not be responsible for re-inspections and/or associated fees. Some banks or Corporate sellers like Fannie Mae will not have utilities on and this will be a buyer expense. They may even require that you have written permission to turn on the utilities.
The catch here is that some municipalities are requiring safety inspections prior to allowing the utility companies to turn the power back on. This must be done by a SC licensed contractor. If it does not pass safety it he municipality may require repairs or updates to existing codes prior to allowing the power to be turned on. This is another example of a buyers expense and another reason to use a highly experienced REO buyers agent.
HINT **Appraisal - please note that as per new appraisal guidelines the appraiser must have power, water and sewer operational during the appraisal site visit - please try to coordinate the appraisal at the same time as inspections to avoid having the utilities shut off prior to appraisal. The appraiser needs to visually see running water and flushing toilets! SERIOUSLY!
Can I cancel the contract if they ﬁnd something wrong? The buyer may have the right to cancel the contract and receive their deposit back if they do so within their contractual time. READ THE CONTRACT CAREFULLY -
Will the Seller pay for repairs? The home is being sold “AS-IS.” If the bank has rehabilitated the home, their scope of work has already been determined and cannot be changed. Therefore FHA/VA offers present obvious problems. We are FHA 203k rehabilitation loan experts and can help you with a purchase needing repairs. As a general Rule REO listings are sold STRICTLY AS/IS with no repairs.
Will the Seller pay for and get Pest (termite) inspection? No. If this is a requirement of your lender then you should expect to order and pay for that inspection. The same for any other lender required inspections. Remember, a CL-100 pest infestation report is now only valid for 30 days. If the bank has title problems that need correcting your closing may be delayed. If you are borrowing money you may be required by you lender to provide an updated CL-100 prior to close. ( again, your cost)
What if there is evidence of infestation on the Pest report? Your lender may have a stipulation that these items must be corrected prior to close of escrow. Please be aware that you will, more than likely, be responsible for correcting those, not the bank. We suggest you get your termite inspection done well within your contingency period to determine your obligations.
Does the Seller offer Financing? Not usually. If they do, it will be noted in the MLS. Some sellers require that you have a pre-qualiﬁcation letter from one of their loan officers, though typically there is no obligation to use that lender. Your Realtor can help get you in contact with the right person to have this prequalification done with.
Contingency Periods? You must adhere strictly to the contingency periods or are at risk of having the contract canceled and then losing your deposit. This is a business transaction and banks don’t like excuses or delays. Most banks institute a “per diem” charge for delayed closings. Please pay attention to these time frames.
My financing fell through....what now? If the contract clearly states that written notification that your loan is not approved is required. this must be in the time frame specified in the contract. If this notification is not given then they assume financing is fine and that contingency is automatically removed. What does that mean really? It means you will likely lose your earnest money if you loan falls through at the last minute. REALLY!
Will the Seller accept Contingent Sales? It is highly unlikely that any bank would accept an offer contingent upon the sale of another home. If the bank accepts your offer then ﬁnds out that you really do need to sell a home in order to purchase (and you haven’t disclosed that) the sale will be immediately cancelled and you will lose your earnest money deposit.
Can I add or delete a buyer once in Contract? All changes must be made in writing and ASAP. There are many levels and channels to go through to an REO sale. Everything takes time. This still does not guarantee that the seller will agree to any changes, and they never allow assignment. If you are married and plan to buy as married be sure to write contract with both your names prior to submission. If you are an investor that is planning on taking title in the name of an LLC, or corporation they will either have to form the entity prior to writing (to provide documentation to the bank the entity exists, as the banks are required to verify this under federal law) or they will have to transfer the property after settlement. If you are buying as an entity the REO seller may request a copy of articles of incorporation etc.
Please be considerate, we are all working towards the common goal of closing on the subject property. If you have a specific attorney you want to use please make sure to put it in the contract.