Buyer’s of a “bank owned” property, or REO sale as they are often referred to, may come across some verbiage in the Banks Addendum to the Real Estate Purchase Contract that catches their eye: Per Diem Penalty.  Escrow Officers are often asked, what does this mean?

Latin for “per day”, per diem has many uses. What per diem is referring to in this instance is in the event escrow does not close by the date set forth in the contract, the Seller can impose a daily penalty to the Buyer for each day beyond the initial agreed upon closing date until the day the escrow officially closes.

The amount of this penalty differs depending on terms of the contract. It can be a percentage of the purchase price or a set daily amount (ie $100 per day). It is important to note, agreements can be made between the Buyer and Seller to waive the penalty when applicable.

One way a Buyer can strive to close escrow on time and avoid penalties is to complete escrow and mortgage paperwork and provide requested documents in a timely manner. However, circumstances may still arise that are beyond the Buyer’s control. In this event, a Buyer should ask their agent to renegotiate the terms of the contract to extend the closing date or to waive the penalty with the Seller and Seller’s agent.

In REO transactions, as with any real estate transaction, it is very important to be sensitive to all time frames in order to alleviate unnecessary charges.

If you have further questions about the Per Diem Penalty, do not hesitate to contact your escrow officer for further clarification or leave us a note in the comments.

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Whether you are a REALTOR considering getting into the niche business of dealing with REO’s, a buyer looking to find a deal on a home by seeking a foreclosed property or a seller looking for information on what happens when a foreclosure proceeding is started, you need to know and understand the foreclosure process. By understanding this process, you will know how long the process may take, which entities are involved, and when the proceedings can be halted. Below is a simplified version of the process.

Defaulting on one’s loan causes the start of foreclosure, the process by which the lender takes over the home in order to recover their principal investment. Once the house is either sold on the steps of the title company or the court house at the Trustee’s Sale or “repossessed” by the lender, it is sold and the former owner must vacate at the discretion of the new owner. When there is a power of sale clause in the deed of trust the non-judicial process of foreclosure is used.

Notice of Default:

In California, the timeline of non-judicial foreclosure begins when the trustee files a notice of default. This is a letter that is sent to the owner/trustor notifying him or her of their default of the loan. This notifies the owner of the intent of the lender to follow through on their right to collect on the debt. The copy of the notice, which is recorded at the County Recorders Office of the appropriate county, is mailed to the address of notice as per the deed of trust.

Notice of Trustee’s Sale

No sooner than ninety (90) days after the trustee records the Notice of Default, the Trustee must publish a notice of trustee’s sale in the local paper and simultaneously file that notice with the county recorder’s office. No sooner than twenty days (20) after the notice of trustee sale is filed, the home may be sold at public auction for the amount of the debt plus foreclosure costs. If no one bids at the auction, the lender assumes ownership of the property, and may dispose of that property to recover their cash investment.

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If you are either in the process of buying or selling a foreclosure property, understanding the basic terms will help you ask appropriate questions of your REALTOR, the escrow officer, the lender or other parties involved in the transaction. This can expedite the timeframe of the process for everyone involved.

Below are the most common terms used in connection with the foreclosure process:

A Deed of Trust:
A Deed of Trust is the security for your loan. It is the document that is recorded in the public records.
A deed of trust contains three parties:

• The Trustor, which is the borrower
• The Trustee, which is an entity that holds “bare or legal” title
• The Beneficiary, which is the lender

The deed of trust is an instrument that identifies the following:

• Original loan amount
• Legal description of the property being used as security for the mortgage
• The parties
• Inception and maturity date of the loan
• Provisions of the mortgage and requirements
• Late fees
• Legal procedures
• Acceleration and alienation clauses
• Riders, if any, regarding such clauses as prepayment penalties or terms of an adjustable rate mortgage

Notice of Default:
Lenders file in the public records where the property is located a public notice called the Notice of Default. It states that the borrower is in default, behind in the mortgage payments, and if the payments are not paid up, the lender will seize the home. In California, lenders typically do not file a Notice of Default until the borrower is at least 60 days behind in making payments. Lenders must then wait 90 days. During that 90-day period, the borrower has the right to make up the back payments and reinstate the loan. After 90 days, the lender is required to publish a notice in the newspaper for 20 days and then may sell the property to the highest acceptable bidder on the courthouse steps. If no acceptable bid is received, the trustee then conveys the property to the lender.

Deed-in-Lieu of Foreclosure :
A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage.

Foreclosure:
Legal proceeding by which a borrower’s rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. The lender may then declare the entire debt due and owing and may seek to satisfy it by foreclosing. Foreclosure is commonly by a court-decreed sale of the property to the highest bidder, who is often the lender.

As we all know, foreclosures continue to be in the news and continue to dominate the market. This means that REALTORS, struggling homeowners, and potential buyers need to have information about the process and terms of foreclosure in order to make important decisions about the sale or purchase of a property.

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For a number of reasons, the process for an REO escrow can take longer than a standard escrow:

• The Seller of an REO is a Bank or Lending Institution who may have many properties in escrow at once. This means that what may seem like a simple response to a question can take days to be considered, much less answered.

• An accepted offer or contract may take several days to be uploaded onto the Seller’s online system where it will only then be listed as a “task” to open escrow.

• Banks must follow specific, strict procedures that can take longer than a standard escrow.

• Finally, the HUD process takes approximately five days after the Buyer has signed the loan.

Realtors: Realizing these differences and delays can help you keep your Buyer calm and confident while working through an REO escrow.

Buyers: Knowing it can take longer to work through an REO escrow can help make the process much less stressful.

When all parties understand how these differences add time to the process, they can sit tight and allow the escrow officers to focus their time on processing the transaction. Ultimately, your patience can lead to a successful (and less stressful) transaction for everyone.

REO properties are a hot commodity right now as roughly half of the foreclosures going to auction are reverting to REOs. More and more people are seeing that they can get a great price on an REO property and still enjoy a buying process that is very similar to buying a home in the traditional fashion.  However, because the property is owned by the bank or lender, in an REO purchase transaction, there are a few differences in the escrow process from a traditional home purchase transaction.

REO listings offer viewings and inspections just like traditional home buying; the big difference is really in the often rock bottom price and the closing procedures. This is because banks are not in the business of owning Real Estate; their interest is to resell the property as quickly as possible to avoid further risk exposure.  As a result, REOs come with a very strict and tight escrow timeline. Most REOs have a 30 day closing, in some states it can be 45 days, and either way banks are not willing to be flexible.

There are a lot of REO properties available right now so if you’re ready to buy and looking for a deal, now is a great time to consider an REO purchase. Your Realtor can advise you on the opportunities and your CV Escrow officer can walk you through a detailed explanation of the REO escrow process.  To learn more about the REO buying process and its Escrow implications check out, Bargain Shopping at the Bank-An REO Purchase Overview.

1. Escrow isn’t officially open until the seller has uploaded the contract into the seller’s online systems, it’s been signed by both the buyer and seller, and it shows as a “task” in the seller’s online system to open escrow.
2. Escrow instructions, preliminary title and commission orders will be e-mailed 48 hours from the receipt of the seller’s fully executed contract.
3. Loan documents must be received 24 hours before the buyer’s appointment to sign.
4. Expect to wait up to 5 days from the buyer’s signing date for escrow to receive the estimated HUD approval from the seller.
5. Once approval is obtained, the file is set to record the following business day after the lender’s funds have been received.
6. Funds are usually distributed 24-72 hours after recording.  This timing is subject to seller’s approval of the final HUD statement.

Also important to keep in mind is that communication with CV Escrow regarding your transaction is generally most efficient via email.  Email communication provides a written record and time stamp of the communication and allows your escrow officer to respond in a timely manner.

Understanding these details can help to set the proper expectations with buyers and help ensure that your next REO escrow goes as smooth as possible.

If you’re looking for a way into the real estate market, REO or ‘Real Estate Owned’ properties are the hot ticket right now. These are homes that fell into foreclosure and then didn’t sell at auction. So now, the bank or lender owns the property and wants to get it off their books ASAP. Usually you can get these homes for a steal.

Buying an REO property is easier than you might think. It’s actually almost the same as a regular home purchase. You still view the home and write an offer; the big difference is that you go into escrow with the bank- not a private seller. Dealing with the bank makes for a different negotiation process, and has some impact on the escrow process as well.

In terms of negotiation, let’s say you make the bank of offer. They may sit on it for a while and mull it over. Depending on how close your number is to what they need to recoup their losses, they might agree right away, or wait for other offers to come in before they accept or decline yours. They may not counter you the way a traditional homeowner might…instead, they may just accept another offer. However, if they do accept, you will enter into an escrow agreement with the bank.

When you’re in escrow with a bank the process is different from a traditional home purchase. An REO sale has very strict time constraints and deadlines built into the escrow agreement. Banks are absolutely set on meeting those deadlines and because they are an institution not an individual, they can charge hefty fines if you fail to meet their deadlines. The upside – you can close fast. The downside – the bank can take back the offer without returning your earnest money (escrow deposit) if they feel the terms of the escrow will not be met on their timetable.

Don’t get discouraged though. People are purchasing REO properties in droves because they are saving between 10-30% on their purchase. It’s a fantastic way to get into a first home or buy investment property. So if you’re ready to plunge in feet first, talk to your Realtor about testing the waters on an REO property. The market is flooded with them right now so your options are plentiful. Happy home buying!

Fact:

The REO escrow must close on time

Fact:

The escrow cannot be opened until the purchase agreement is uploaded to the sellers (banks) online REO system and made available to escrow to download. This can occur as late as 1-2 weeks after acceptance, which delays the escrow opening and in turn may delay the escrow closing.

Tip #1:

Upon acceptance, provide the escrow holder a copy of the signed contract. This way, escrow is able to order the reports prior to the opening of the escrow and while everyone is waiting for the signed contract to be uploaded into the seller’s system. This could be essential to the escrow closing on time.

Tip #2:

Although escrow is conducted in accordance with the terms of the contract and governed by state law, the seller controls the manner in which the escrow is processed. This is the reason that agents may not be able to choose their escrow companies when the property is bank owned. You will most likely be using an escrow company (like ours) who has been selected and approved by the seller/lender to handle REO’s. Bank approved escrow companies are required to undergo extensive training on the seller’s individualized REO system.

Tip #3:

Is anyone out there still not using email to conduct their transaction? If so, you must embrace email. Email is a basic survival skill for REO escrows. The escrow is conducted via email due to time limitations, and as stated above, the REO escrow must close on time. Therefore, time is of the essence! Email is an essential tool in support of a timely transaction.