Our friends at Ticor Title have put together an informative piece showing the differences between a standard resale transaction and an REO (bank owned) transaction.
Although REO transactions are typically much smoother than short sale transactions, there are many inherent complexities that can still add time and delays to the escrow process and closing period.
Click on the document below to learn of these potential closing delays.
billddrummer
To Guy,
Thanks for this resource. It helps explain why even REO properties can take untold weeks to close, when it seems so easy according to the informercial crowd.
Do you run into situations where the seller (bank) will sign an indemnity agreement prior to close if additional liens appear on title that didn’t come up when the original prelim was done?
I’m aware of some cases where the prelim looks OK, but some liens aren’t captured at first. Then (similar to the HOA example), a new prelim is run just before closing and other claims ‘pop up.’ Then, it seems to me that the buyer has 3 choices: Clear the liens themselves, renegotiate the sales price, or walk. But if the seller signs an indemnification agreement, any new claims would become their responsibility.
I didn’t know whether banks were doing that.
Just wondering.
Tom
Bill, getting a bank to sign on to a blanket and wide-open indemnification for IBNRs (`incurred but not reported’ claims and liens) is highly unlikely. It would be more readily acceptable for the buyers wanting that type of protection to condition their offer upon approval of a further, final title report update, pulled as of the projected closing date. I think as such buyer I would also want the “Eagle” type of title insurance protecting against such claims. You could also try inserting a warranty against unknown and undisclosed claims and liens related to prior ownership of the property; a warranty is easer for a bank to pass through internally than is an indemnity.
billddrummer
To Tom,
Thanks for the input. I had the same gut reaction you did, and I appreciate the validation, and the suggestions for prospective buyers.
Inclinejj
It depends on the type of lien..some are senior to a deed of trust..others are not..
If your lien isn’t recorded then your out. there is no recourse
Plus if the junior liens don’t step in to protect the investment they are all wiped out by the foreclosure auction..
billlddrummer
To jj,
You’re absolutely right. As a courtesy, some senior lienholders will offer a token payment to a junior lender, but they aren’t obligated to do so.
And it’s rare indeed to find a senior lender that is willing to cut its opening bid below what’s owed. I know there have been stories posted here about that, but in my 25+ years in banking, I’ve never seen it.
smarten
billddrummer said, “it’s rare indeed to find a senior lender that is willing to cut its opening bid below what’s owed. I know there have been stories posted here about that, but in my 25+ years in banking, I’ve never seen it.”
I agree with you and voiced the same skepticism when Mike posted several examples to the contrary. IMO, there’s no reason for a senior lender to bid anything less than the full amount owed at its [nonjudicial] trustee’s sale. True the transfer taxes may be a bit lower but the savings are inconsequential. Even if a lender has been contacted by a potential purchaser ahead of its trustee’s sale; and is willing to sell for less than what’s owed; there’s nothing stopping the lender from bidding what’s owed [even if its opening bid is lower] and then after the sale, selling for a loss. But as Mike asked me; have you been to a trustee’s sale lately?
GreenNV
It’s not just one or two odd examples. The MAJORITY of Trustee’s Deeds are being bought back by the lien holder for less than the amount owed on the first mortgage. 20% less isn’t uncommon.
I don’t know what the banks’ angle is here. Sure, a little transfer tax savings. No one really goes to the sales, so lowering the opening bid isn’t designed to attract bidders. There must be some tax and accounting technicalities that make reducing the book value of the properties a positive for them.
billlddrummer
To smarten,
No, I haven’t been to one recently. I did go to the first sale of my old house, but that was in May 2007. I think the atmosphere has changed since then.
I prevented the sale that day by filing a Chapter 13 literally 30 minutes before the hammer came down.
As it turned out, 4 months later, my case was thrown out, the stay lifted, and the sale went off anyway at the same balance.