01/20/2018
Does anyone have any pending REO transactions? The Closing Coordinators can be very nice to deal with but that is were the nice ends.
To be fair, even though the very one sided REO Contract usually give the Buyers no protection or resources to address any problems with the property after you sign, they will often let you out of the contract and return your deposit, unless you have really played your card wrong with them.
REO properties are not what they use to be. You better know what you are doing or you will have a lot of surprise expenses.
REO contracts usually charge you a "Buyer's Premium", which is a nice way of saying you pay them a Credit to Buyer their property at seemingly lower than market price. How much, depends on the REO Vendor, but is often lines up with the Real Estate Commission fees. (Even if you don't have a realtor representing you.)
Then there are the Expenses, usually paid by the Seller that are shifted over to the Buyer. The Deed Recording fee is a primary example. This cost alone can be greater than your Title Insurance fee. (more on the title insurance fee below.) Deed recording fees are .70 per thousand or about $700.00 per every $100,000.00 for the mathematically challenged out there.
The next item shifted from the Seller's to the Buyer's column is the Municipal Lien Search. (These searches can reveal those open permits or work without permits, that may require you to teardown some of the improvements that attracted you to the property in the first place.) They can also show you if the there are any outstanding Code Violations or Pending Unrecorded Liens against the property. Sometime a simple violation can accumulate up to a $500.00 a day penalty for months or even years. You need to know that they are out there and find out if they can be negotiated with the Municipality before you close the deal. But most Violation require you to cure the underlying issue before you can payoff the fine and close the matter out. If the REO is unwilling to give you the time to do this or is not willing to work with you at all, you better have a back up plan. Or have someone on your team that knows how to navigate these waters.
The Municipal Lien searches above are only about City or County liens and should not be confused with a Title Search. The Title Searches are just about open Mortgage, Open Liens, Open Creditors that may have been missed by the Foreclosure (It does happen.) or any number of hidden problems to numerous and boring to go into here. (Believe me I know this is boring enough, but it can save you thousands of dollars, so stick it out.) Title Search are performed by either the Title Company that the REO Vendor chooses, in which case for some reason they will pay for the Title Insurance (remember about .70 cent per thousand dollars of value.)
Why would the REO Vendors be so generous? Why use your own Attorney or Title Company to review and order all the Searches and Perform the Due Diligence when you have have the REO Vendor's Title Company do the work for free? They may not order the Lien Search, since you already signed a contract that you are Buying the Property "as is, where is" and that you already performed your own due diligence before signing the contract. They usually don't order the Lien Search unless requested and paid for by the Buyer and even then it is the bare bones search that I have seen them order. The full search may cost $200.00 the simple search $150.00, but who cares? You should have looked before signing the contract anyways. So you saved on the Title Search, congratulations! I had one client call me two months after closing because an unclosed Mortgage, was missed by the Bank's Title Company and they were foreclosing on my client's property. We sorted it out, but it cost more than if I had done the title work or if I had been his attorney during the transaction. Never mind the scare for a few months not knowing if he could keep his property, which he had already spent tens of thousands of dollars improving.
I really could write a small book about this, I practically have above. Sorry about the long post but to see investors be a penny wise and a dollar stupid, just beats me up. I can do so much more with so much less if I can be there to prevent the disaster in the first place. AND YET, to often, my more recent clients still call me after the fact.
If you are thinking about REO, Short Sale or distressed properties either for investment or a cheaper way to find a place to live, do your homework and then either find someone that has been doing for a while and hasn't gone broke yet or hire an attorney like me, that has trained more than one of those investors and learned a lot from them in the process.
Ocwen disclosed Friday that it reached a settlement with two more of the 31 states that took regulatory actions against the nonbank last year over alleged escrow and other servicing issues. But that wasn’t the only interesting item that Ocwen disclosed in its latest SEC filing.
