Your Guide to REO Properties In Alabama
After a moratorium on foreclosures due to the Covid-19 pandemic, foreclosures are now increasing. As a result, we can anticipate to see a boost in the variety of REO residential or commercial properties readily available on the market in the coming months.
Whether you're a relatively new real estate agent or one who's remained in the organization for a while, you probably could utilize a refresher on these bank-owned homes.
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Our resident REO expert, Jeff Underwood, shares what real estate agents require to understand about REO residential or commercial properties in Alabama.
What is an REO residential or commercial property?
Basically, an REO residential or commercial property is genuine estate that is owned by a bank or loan provider after failing to sell at a foreclosure auction. But to really comprehend REO residential or commercial properties, you initially need to comprehend the foreclosure process.
The Foreclosure Process
When a specific with a mortgage stops paying on that mortgage for any factor, the foreclosure procedure will start. The mortgage agreement will consist of language about when the bank can begin this process. Typically, a lender won't begin the foreclosure procedure up until the debtor has missed 4 consecutive payments.
Not all residential or commercial properties that enter the foreclosure procedure are actually foreclosed upon. Jeff Underwood, handling attorney at South Oak Title & Closing in Auburn, states, "In numerous cases, the mortgage is reinstated or the lender will work out loss mitigation alternatives to avoid foreclosure. A debtor who applies for Chapter 13 insolvency will likewise halt the foreclosure process."
This procedure looks different in every state. Underwood explains, "Alabama is a nonjudicial state. This suggests that the bank does not need to submit a suit versus the defaulted mortgagor to foreclose. Instead, the bank sends a series of notifications that informs the mortgagor that they remain in default and supplies information about reinstatement. Failure to do so will result in a foreclosure sale." Other states, such as Florida, need lending institutions to submit a claim versus the mortgagor in state court to foreclose.
In Alabama, notifications about the upcoming foreclosure sale are likewise published in the county paper for three weeks. If the bank or lending institution is the high-bidder or just buyer at the foreclosure sale, this residential or commercial property becomes "realty owned", or an REO residential or commercial property.
Selling an REO residential or commercial property
Jeff Underwood states, "Lenders aren't in the 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 lender sends a recommendation for this residential or commercial property to both a realty brokerage and a title company.
Listing Process for REO residential or commercial properties
Listing an REO residential or commercial property for sale is really comparable to noting any other residential or commercial property, with a couple of essential distinctions. There's still a check in the lawn, a listing on the MLS, and photos of the residential or commercial property. The broker's objective is to find a purchaser for the residential or commercial property. But instead of a specific client, the broker represents a lending institution. On the MLS, this residential or commercial property will be designated as bank-owned.
Underwood says, "These residential or commercial properties may not look like a common 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 employ a company to clean things up and make sure things are working, however purchasers won't discover a staged, upgraded home."
Lenders desire to offer REO residential or commercial properties for fair market value as quickly as possible, so prices is identified by getting a BPO, or broker rate viewpoint. Two real estate agents will provide their opinion on the market rate of the residential or commercial property, and then these opinions are averaged to get the sale price. If the residential or commercial property languishes on the marketplace, the bank will begin dropping the price in incremental portions to find a purchaser.
Title Process for REO residential or commercial properties
When the title company receives the recommendation for an REO residential or commercial property, they will initiate a title search, just as they would for any other residential or commercial property. "We do this before the residential or commercial property is listed for sale, and similar to any title search and examination, we're searching for any potential problems so that we can present a clear title to the buyer," 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 dealt with such as judgments, encumbrances, or liens, the title company will clear the title so that it's prepared for a future purchaser. 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 typical title problems can occur with REO residential or commercial properties. Tax redemption issues are especially typical. 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 overdue by April, the county will have a tax sale in May. For the most part, the county is the high bidder. But in other cases, a third celebration will purchase the tax certificate.
Underwood states, "If the county owns the tax certificate, solving this is a quite straightforward procedure. But if it's owned by a 3rd celebration, it can get complicated." To redeem from a private, a bank is required to pay the overdue taxes, charge, interest, as well as the value of any enhancements on the residential or commercial property. In some circumstances, there can be an extended settlement process to eliminate this tax lien.
Encroachment issues are also common with REO residential or commercial properties. Residential or commercial property lines aren't constantly clearly marked, which is why surveys are an essential part of the title search and test. Underwood explains, "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 issues and sometimes, a quitclaim deed may be needed.
And as with any other residential or commercial property, we can discover any variety of other title issues. Missing deeds, deeds in the back chain of title that do not have marital status, and other encumbrances can also be discovered during the title search and test. Title business experienced with REO residential or commercial properties understand precisely which problems to search for and how to resolve them to present REO purchasers with a clear title.
Owner's title insurance coverage secures homebuyers from covert threats to their title after purchase. An improved owner's policy may be suggested for individuals who purchase an REO residential or commercial property. But no matter the policy, REO residential or commercial property purchasers need to constantly be aware of laws worrying the right of redemption.
Right of Redemption Laws
Individuals, consisting of the foreclosed debtor or heirs of the debtor, can 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 quantity of the foreclosure quote, interest, and other charges including taxes, insurance coverage, and repair work."
"Because foreclosure sales can take place reasonably rapidly in Alabama, the redemption period is longer than in a lot of states. For mortgages stemmed before 2016, that redemption duration is a year. For mortgages originated after January 1, 2016, the redemption period is shortened to 180 days."
He continues, "Redemptions of foreclosed homes are extremely rare, but anybody buying an REO residential or commercial property needs to deal with a lawyer who knows and comprehends the law." These laws differ from one state to another and can change, so always consult your closing attorney with specific questions about the right of redemption.
Buyers buying an REO residential or commercial property before the redemption period expires requirement to be aware that owner's title insurance will never provide affirmative coverage over the right of redemption. For money buyers, this will be noted as an exception in Schedule B-2 of the owner's title insurance coverage for the period of the redemption period.
Lenders offering funding for REO purchases will usually require affirmative protection for the staying redemption period. Options, such as a bond, exist if the loan amount is up to 30% higher than the foreclosure quote, but purchasers should understand that affirmative coverage for the remaining redemption period just protects the lending institution.
The Future of REO Properties
Due to the pandemic, a moratorium on foreclosures was in location up until November 2021. As this moratorium has actually lifted, lending institutions have executed loss mitigation procedures to keep individuals in their mortgages and help them keep their residential or commercial properties. However, if loss mitigation methods are not successful, the foreclosure procedure begins.
Underwood says, "Foreclosure starts are up 39% over the last quarter, and we're expecting to see a boost in these as the year advances. Starting in the 3rd quarter of this year, we'll start to see a higher-than-normal percentage of REO residential or commercial properties on the marketplace. It will not resemble it was in 2008, but it will definitely be more than what we're used to seeing."
There's no need for real estate agents to be frightened by REO residential or commercial properties. As more of these residential or commercial properties appear in the MLS, real estate agents who understand the subtlety of purchasing a bank-owned home are better equipped to serve their customers.
At South Oak Title and Closing, we like partnering with real estate agents to assist them much better serve their clients. Whether you have particular questions about dealing with REO residential or commercial properties or just require an REO specialist in your corner, we're here for you. Contact us with your concerns today.
Jeff Underwood
Jeff is a Birmingham native and graduate of the Birmingham School of Law. He has actually spent years dealing with banks, loan providers, and REO residential or commercial properties through his time leading the at a Birmingham law practice. Jeff is married and has two daughters: one current graduate and one current student at Auburn University.
Jeff Underwood is the Managing Attorney at South Oak Title & Closing in Auburn.
This short article is intended to provide basic details about REO residential or commercial properties in Alabama and must not be thought about legal recommendations. Laws concerning REO residential or commercial properties likewise vary from one state to another. Please consult your local attorney with concerns.