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 an increase in the number of REO residential or commercial properties readily available on the marketplace in the coming months.
Whether you're a relatively brand-new real estate agent or one who's been in business for a while, you most likely could utilize a refresher on these bank-owned homes.
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Our resident REO specialist, Jeff Underwood, shares what real estate agents require 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 realty that is owned by a bank or lending institution after stopping working to sell at a foreclosure auction. But to truly comprehend REO residential or commercial properties, you initially need to comprehend the foreclosure procedure.
The Foreclosure Process
When a private with a mortgage stops making payments on that mortgage for any factor, the foreclosure process will start. The mortgage arrangement will include language about when the bank can start this procedure. Typically, a lender won't start the foreclosure process until the customer has actually missed 4 successive payments.
Not all residential or commercial properties that enter the foreclosure process are actually foreclosed upon. Jeff Underwood, managing lawyer at South Oak Title & Closing in Auburn, says, "In a lot of cases, the mortgage is renewed or the lending institution will work out loss mitigation options to avoid foreclosure. A debtor who files for Chapter 13 personal bankruptcy will also halt the foreclosure procedure."
This process looks various in every state. Underwood explains, "Alabama is a nonjudicial state. This means that the bank does not have to submit a suit against the defaulted mortgagor to foreclose. Instead, the bank sends out a series of notifications that notifies 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, need lending institutions to submit a lawsuit against the mortgagor in state court to foreclose.
In Alabama, notifications about the upcoming foreclosure sale are likewise published in the county newspaper for 3 weeks. If the bank or loan provider is the high-bidder or only purchaser 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 says, "Lenders aren't in the service of retaining these residential or commercial properties. Their goal is to offer 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 lending institution sends out a referral for this residential or commercial property to both a property brokerage and a title business.
Listing Process for REO residential or commercial properties
Listing an REO residential or commercial property for sale is extremely comparable to noting any other residential or commercial property, with a few key differences. There's still a sign in the lawn, a listing on the MLS, and images of the residential or commercial property. The broker's objective is to a buyer for the residential or commercial property. But instead of a specific client, the broker represents a loan provider. On the MLS, this residential or commercial property will be designated as bank-owned.
Underwood says, "These residential or commercial properties might not look like a normal 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 work with a company to clean things up and ensure things are working, but purchasers won't find a staged, upgraded home."
Lenders wish to offer REO residential or commercial properties for fair market price as quickly as possible, so rates is figured out by acquiring a BPO, or broker price opinion. Two real estate agents will provide their viewpoint on the marketplace cost of the residential or commercial property, and after that these opinions are averaged to obtain the sale price. If the residential or commercial property languishes on the marketplace, the bank will begin dropping the cost in incremental percentages to find a buyer.
Title Process for REO residential or commercial properties
When the title business receives the referral for an REO residential or commercial property, they will start 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 just like any title search and test, we're looking for any potential problems so that we can present a clear title to the buyer," Underwood explains.
If the title is clear, this file is ready for when the residential or commercial property goes under agreement. If there are problems that need to be attended to such as judgments, encumbrances, or liens, the title business will clear the title so that it's prepared for a future purchaser. Once the residential or commercial property goes under contract, all that's needed is an upgrade to title.
Common Title Issues with REO Properties
Several typical title concerns can occur with REO residential or commercial properties. Tax redemption problems are especially typical. In Alabama, taxes are paid in defaults. 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 3rd party will buy the tax certificate.
Underwood states, "If the county owns the tax certificate, resolving this is a pretty uncomplicated 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 overdue taxes, penalty, interest, as well as the worth of any enhancements on the residential or commercial property. In some circumstances, there can be an extended settlement process to remove this tax lien.
Encroachment concerns are also common with REO residential or commercial properties. Residential or commercial property lines aren't always clearly defined, which is why surveys are a needed part of the title search and examination. Underwood explains, "An infringement 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 made complex to clear these concerns and sometimes, a quitclaim deed may be needed.
And just like any other residential or commercial property, we can discover any variety of other title problems. Missing deeds, deeds in the back chain of title that do not have marital status, and other encumbrances can likewise be found throughout the title search and examination. Title companies experienced with REO residential or commercial properties know exactly which issues to search for and how to resolve them to present REO purchasers with a clear title.
Owner's title insurance coverage protects homebuyers from concealed threats to their title after purchase. An enhanced owner's policy may be suggested for people who buy an REO residential or commercial property. But despite the policy, REO residential or commercial property buyers must constantly be aware of laws concerning the right of redemption.
Right of Redemption Laws
Individuals, including the foreclosed debtor or beneficiaries of the debtor, deserve to redeem or redeem a foreclosed residential or commercial property for approximately a year after the foreclosure sale. Underwood explains, "To redeem a foreclosed residential or commercial property, the redeeming party must pay the amount of the foreclosure quote, interest, and other charges including taxes, insurance, and repairs."
"Because foreclosure sales can take place reasonably rapidly in Alabama, the redemption period is longer than in most states. For mortgages originated before 2016, that redemption period is a year. For mortgages originated after January 1, 2016, the redemption period is reduced to 180 days."
He continues, "Redemptions of foreclosed homes are very rare, but anyone acquiring an REO residential or commercial property requires to work with a lawyer who understands and understands the law." These laws differ from one state to another and can alter, so constantly consult your closing attorney with particular questions about the right of redemption.
Buyers purchasing an REO residential or commercial property before the redemption period ends requirement to be conscious that owner's title insurance will never offer affirmative protection 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 plan throughout of the redemption duration.
Lenders supplying financing for REO purchases will typically require affirmative coverage for the remaining redemption duration. Options, such as a bond, exist if the loan quantity depends on 30% higher than the foreclosure quote, however purchasers need to understand that affirmative coverage for the remaining redemption duration just secures the lending institution.
The Future of REO Properties
Due to the pandemic, a moratorium on foreclosures was in location till November 2021. As this moratorium has actually lifted, lenders have actually executed loss mitigation treatments to keep people in their mortgages and help them keep their residential or commercial properties. However, if loss mitigation methods are not successful, the foreclosure procedure starts.
Underwood states, "Foreclosure starts are up 39% over the last quarter, and we're anticipating to see an increase in these as the year progresses. Starting in the 3rd quarter of this year, we'll start to see a higher-than-normal portion of REO residential or commercial properties on the marketplace. It will not be like it remained in 2008, but it will definitely be more than what we're utilized to seeing."
There's no need 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 subtlety of purchasing a bank-owned home are much better geared up to serve their customers.
At South Oak Title and Closing, we love partnering with real estate agents to assist them much better serve their customers. Whether you have particular concerns about working with REO residential or commercial properties or just require an REO professional 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 spent decades working with banks, lenders, and REO residential or commercial properties through his time leading the REO department at a Birmingham law firm. Jeff is wed and has 2 daughters: one current graduate and one existing trainee at Auburn University.
Jeff Underwood is the Managing Attorney at South Oak Title & Closing in Auburn.
This post is meant to supply general information about REO residential or commercial properties in Alabama and ought to not be thought about legal recommendations. Laws concerning REO residential or commercial properties also differ from state to state. Please consult your local lawyer with concerns.