REO vs. Foreclosure

An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.
Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier’s check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in “as is” condition, which may include someone still living in the property. There may also be other liens against the property.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property “reverts” to the bank. It becomes an REO, or “real estate owned” property.

REO Properties For Sale

The bank now owns the property and the Loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a Title Insurance policy and the opportunity to investigate the property.
A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain.

How Banks Sell REO’s

Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in “dumping” real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.
Once you make an offer to purchase, banks generally present a “counter-offer.” It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.
Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval within 5 days.”

Property Condition

Banks always want to sell a property in “as is” condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to “as is,” always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted.

Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.

What About Paying Property Taxes In California?

Property taxes on owner-occupied residences are levied on Assessed Value. Assessed Value is 10% of Full Cash Value.  The Full Cash Value could be different (usually lower) than the price you paid for your home.

The amount of taxes you pay will vary based on where you live. Property taxes are the sum of state, county, municipal, school, and special district rates. There are also exemptions and rebates that may apply to your property.  Questions on the tax liability for a specific property should be directed to the local tax assesors office.  Contact us for that information.

The Assessor’s Office will update the assessed value of the property every year. The Assessed Value is determined based on a computer analysis of information like previous sales in the neighborhood, view, lot size, and square footage, to name a few variables. If you do not agree with the Assessed Value, you may appeal to the Assessor’s Office.

Property taxes are billed to the homeowner (or mortgage company if your taxes are paid out of the escrow account) twice a year. You can either include property tax payments in your mortgage payments or pay property taxes separately.  The taxes are billed by and payable to the County Treasurer you live in. The taxes are billed in arrears, meaning that: The second half of the previous year’s taxes is billed on March 1st, and payable before May 1st. The first half of the current year’s taxes is billed on October 1st, payable before November 1st.

In What Ways Can I Hold Title To Property In California?

First of all, we recommend that you discuss the various title options with your lawyer or accountant before making any decisions that will affect the title to your new property. Here are some of the options that may be available to you:

Community Property: for married persons only. The State of California assumes all property acquired by husband and wife is community property. One spouse cannot partition the property by selling his or her interest, but each spouse can will one-half of the community property separately.

Community Property with Right of Survivorship: for married persons only. As above, except: upon the death of one spouse, the estate passes to the other spouse outside of probate.

Joint Tenancy with Right of Survivorship: this method of ownership gives title to the last survivor. The individuals can be either married or unmarried, but married persons must specifically accept the joint tenancy to avoid the presumption of community property. Each joint tenant holds an equal interest in the estate, and can partition the property by selling his or her joint interest. Upon death, the estate passes to the surviving Joint Tenants outside of probate.

Tenancy in Common: parties do not have survivorship rights and each owns a specific interest in the entire title. Each tenant’s share can be conveyed, mortgaged, or devised to a third party. Upon death, the tenant’s proportionate share passes to his or her heirs.

Sole and Separate: real property acquired by a spouse before marriage or any acquired after marriage by gift, descent, or specific intent. If a married person acquires title as sole and separate property, his/her spouse must execute a disclaimer deed.

Corporation: title may be taken in the name of a corporation if that corporation is duly formed and in good standing in the state of its incorporation.

General Partnership: title may be taken in the name of a general partnership duly formed under the laws of the state of the formation of the partnership.

Limited Partnership: title may be taken in the name of a limited partnership under the laws of the State of California or another state. A Certificate of Limited partnership must be filed in the Office of the Secretary of State, a certified copy of which must be recorded.

Again, please consult your attorney or accountant before making any decisions on how you will hold title to property in California. We are real estate agents in California – we are NOT lawyers or accountants. The options above are just informational, and should not be construed as legal advice.

Why Do I Need an Agent if I’m Buying a Home Directly from the Builder?

If you go through the builder directly, they are going to look at you as a customer. When you use a Realtor, you become our client. Realtors have fiduciary duties to their clients. Builders have the duty of disclosure, but they don’t necessarily have the same fiduciary responsibility that Realtors do. We look out for you and your interestsduring the home buying process. We can act as the intermediary between you and the home builder. We will be with you when you register with the builder, and can ask questions that you might not think of. Having your Realtor with you during the contract phase will give you extra assurance, as we will review the contract and make sure your questions are answered. Sometimes, a Realtor who is independent of the builder may be able to negotiate a better price and/or better terms for you. Once the contract is signed, we are there to assist you at the appointments that are necessary during the home-building process:

· We can offer you advice at the design center because we know what can hinder or enhance your resale value, and can suggest finishes that may be more appropriate to your plans. Builders make the most profit from design center upgrades, and have salespeople there to promote the options – we can help you allocate your money to choose upgrades that will enhance your home’s value while staying within your budget.

· We can meet with vendors who must access your property before the sale closes if you are unable to be there. For example, you may need windows or rooms measured for window treatments or flooring, or an electrician to verify where you want your surround sound speakers to be placed.

· We can attend the inspection and the builder walk-through to point out areas of concern and make sure all of your questions are answered to your satisfaction before you take title to your new home.

As your Realtor, we want to make sure you are getting the best deal possible. We will negotiate on your behalf and can recommend things the builder will not tell you about, like having an independent inspection before the builder walk-through.  There is no cost to you if you decide to employ a Realtor. Real estate is one of the biggest purchases you will make in your life, and it is prudent to make sure you have an expert representing you. When you choose our team, we are there for you!Contact us today. We look forward to hearing from you.