Escrow and Foreclosing PropertiesAAR 2009 Winter Real Estate Conference

Janette WallerVice President Maricopa County Operations Manager

Michael OmanAccount Manager, REO ServicesArizona-Nevada

March 12th, 2009

ESCROW HOT TOPICS

• 2008 and 2009 Facts and Figures

• Pre-Foreclosure and Short Sales

• Foreclosed and REO Properties

• Questions?– with Major Audience Participation

Facts and FiguresMeasure Twice and Cut Once

Nationwide Facts 2008

• 3,183,701 properties received at least one foreclosure related filing.

• There were 1,805,022 foreclosure re-sales with an average sale price at $288,987.

Arizona Facts 2008

• In 2008 a total of 152,505 Arizona properties reported at least one foreclosure filing.– Up 110% over 2007– The 3rd Highest Rate in the US for 2008

REO HOT SPOTS

This Foreclosure Rate Heat Map shows the relative rate or percentage of Foreclosure activity in each Arizona County.

REALTYTRAC.COM JAN 2009

January 2009

REALTYTRAC.COM JAN 2009

2009 YTD Arizona Activity• 45,863 Arizona Properties Have Had a

Foreclosure Filing through February.– 34,735 of those are in Maricopa County– 4216 are in Pinal County– 2751 are in Pima County

• All in Pre-Foreclosure

FORECLOSURE.COM MAR 2009

ARIZONA TRENDS

• 2006-2008 Sub-Prime Loans Adjust– Relatively New Properties– Located in Newer Suburbs – Communities

• 2009+ Alt-A and No Doc Loans Adjust– Somewhat Higher Priced Properties– Core Cities and Neighborhoods– Economic Factors

• Banking and Credit, Layoffs, Home Values, More Conservative Consumer Outlook

Pre-Foreclosure and Short SalesWe Can Work it Out

PRE-FORECLOSURE • What is happening in Pre-Foreclosure?

• What are the homeowners’ options?

• What do Realtors® need to know?

PRE-FORECLOSURE • If a borrower is late on a payment or

failed to follow the guidelines of their loan repayment, the lender may choose to Foreclose on the property.

• A Notice of Trustee’s Sale is recorded with the County.

• A Sale Date, Time and Location are Set.

PRE-FORECLOSURE

• Homeowners have a number of options.– Make Up the Missed Payments– Work to Forebear the Missed Payments– Loan Modification and Refinance Options

• Possible Government Assistance

– Offer a Deed in Lieu of Foreclosure– Short Sale of the Property– Allow Foreclosure

• Historically, the Majority of Notices of Foreclosure or Trustee’s Sale are corrected and cancelled.

SHORT SALES • Know your numbers

• The Short Sale process

• What you can look for from an escrow officer?

SHORT SALES• What is a Short Sale?

– When a property owner wants or needs to sell a property but does not have sufficient sale proceeds to pay the existing mortgage, liens and all of the normal closing costs usually incurred in a transaction.

– The property owner must ask their existing lender to agree to accept less money than what is owed and provide a FULL release of the sellers obligations.

SHORT SALES

• Credit and Creditor Considerations– Having a portion of the loan forgiven may have

an adverse affect on the seller’s credit.– The IRS requires lenders to submit a 1099

stating the forgiven amount, which is treated as income. *

– We encourage all sellers to seek legal and tax advice from their attorney or tax professional.

*President George W. Bush signed the Mortgage Forgiveness Relief Act of 2007 on September 1st, 2007. The Act sought to give borrowers and lenders added incentive to refinance troubled properties and relieve American families from additional Federal Tax burdens. The Act offered a three year window for such relief.

SHORT SALES• Know the Numbers

– The first step to determining if you have a short sale is performing an Estimated Settlement Statement.

– Gather any outstanding debt and the cost of selling such as real estate commissions, taxes, title and escrow charges and repairs.

– Current challenges for sellers are the depressed housing market and heavily reduced appraisal values for most properties.

– If the bottom line shows cash to the seller a short sale is not needed.

SHORT SALES

• Obtain Creditor Approval– Coordinate with the Lender– Submit Letter of Authorization– Approval Request

• Estimated Settlement Statement (HUD-1)• A Hardship Letter• Proof of Income and Assets• Copies of Bank Statements• Comparative Market Analysis (Comps)• Purchase Agreement and Listing Agreement

SHORT SALES

• Timelines (45-60 days)– The lender can expedite a request when

the Trustee’s Sale date is approaching.– The transaction can close when the

escrow officer has received the lender’s payoff statement, authorizing the payoff amount. Buyer’s documents must be signed and their funds received.

SHORT SALES

• Commissions– The lender will not allow a commission of

more than 5% total– If you are acting as a dual agent lenders

often expect the commission to be at 4%

SHORT SALES Questions

Does the title company communicate with the short sale lender

or does the agent?

The agent must always be talking with the lender. This is not a

standard loan payoff situation.

Submitted by AAR Members

SHORT SALES Questions

Do payoff requests need to

be signed by the seller?

Every lender is different.

Make sure you contact your lender

and follow their instructions.

Submitted by AAR Members

SHORT SALES Questions

Can we conduct a title search prior to receiving a contract and earnest money?

What do you need from the seller?

Yes.

This is not the customary way we do things, however we can do this as requested.

We need the parcel # or the property address. Both would allow us to conduct a title search.

Submitted by AAR Members

SHORT SALES Questions

What can a REALTOR® do to make these transaction close?

Primarily, list the property based on COMPS or BPO acceptable to

the lender and present contracts based on fair market value. The lender has internal

guidelines they must meet to complete a short sale.

Patience. Follow-Up. Persistence.

Submitted by AAR Members

Foreclosure and REO PropertiesA Really Excellent Opportunity

REO DISCUSSION • “Real Estate Owned”

– The Previous Owner was Foreclosed– Most Liens Wiped from Property– The Property is now Owned by the Lender

• Institutional Sellers/Investors make for a very different transaction process.– Contract and Addendum– Escrow Process and Closing

REO PROPERTIES

• The bank who has ownership of a property wants to get rid of it.

• They supervise the process through staff members called asset managers.– A bank may have a Loss Mitigation

Department – or they may hire an asset management

company to supervise the process.

REO PROPERTIES

• Asset Managers– Service and Market the Property– Hire a Listing Agent or Auction Service

• Communicate with Agent Regularly– List Price, Marketplace and Condition

– Ultimately Pay for Carrying Cost– Approve Contracts

• Within Guidelines• Some Offers Must be Escalated

REO PROPERTIES• REO Properties represent a large percentage

of the available inventory in Arizona.– In some AZ communities REO properties make up

over 60% of the available listings.• Most REO listing agents are require to adjust list price

monthly (or even more frequently) based on a new BPO– REO Properties represent over 40% of SOLD

properties in many Arizona Communities.– REO Sales are resetting the Market Value in some

communities.

REO ESCROW TIPS• REO Purchase Contract-Addendum

– No Seller’s Property Disclosure (As is)– Inspections and Responses– Financing Time Frames– Changes to the Close of Escrow Date COE– Penalty for Delayed Closing– Seller Concessions

Preferred Title Company• Why does Seller have a preferred

Escrow/Title Company?– Seller may have already ordered a title

commitment from their preferred vendor to address curative issues prior to sale

– Seller wants one point of contact for all communication on their REO inventory

– Seller wants spreadsheets and/or reporting of status of all of their REO inventory

– Seller wants consistent communication via various electronic platforms

Owners’ Title Policy• How can the seller “force” us to use

their Title Company? Isn’t that a RESPA violation?– The Seller does “encourage” the Buyer to work

with their preferred vendor for title and escrow– Seller offers to pay for Buyer’s Owner’s Policy if

Seller’s preferred vendor is used– Buyer may have additional expense if Seller’s

preferred vendor is not used

REO PROPERTIES• REO Escrow and Closings

– Buyers should not expect to take possession immediately after signing their loan documents or depositing closing funds.

– It may take up to an additional 5 business days to get final Sellers HUD approval and seller signed closing documents.

– For this reason it is recommended that Buyer loan documents be delivered to First American Title a minimum of 5-7 days PRIOR to the close of escrow date specified in the contract.

REO PROPERTIES• REO and Agent Commissions

– Based on the Sales Price– Less Seller Concessions

• Verify available commission with the listing agent at time of offer.

• Confirm the commission on the HUD prior to close of escrow.

• Notify your Escrow Officer of any conditions regarding a possible Bonus being paid by Seller.

REO PROPERTIES• REO Cancellations

– Earnest Money can only be refunded to the Buyer if they strictly adhere to the terms of the Sellers’ Addendum (time-frames and documentation, etc.)

– Earnest Money generally deemed to be forfeited if timely written notice is not given or documentation not provided

Questions?“…There are Only Dumb Answers.”

?

Thank You Realtors®!

GLOSSARY• BPO

– Broker Price Opinion, analysis of Market Value

• COMP – Comparative Market Analysis

• Deed in Lieu of Foreclosure– Deed given by the owner to a lender to prevent the

lender from bringing foreclosure proceedings. The validity of the deed depends to some degree on “fairness” under the circumstances.

• Deficiency Judgment– The amount for which the borrower is personally

liable on a note and mortgage if the foreclosure sale does not bring enough to cover the debt.

• Federal Tax Lien– A lien attached to a property for non-payment of a

federal tax. A federal tax lien is not automatically wiped out by foreclosing on a mortgage or trust deed recorded before the tax lien.

• FHLMC Freddie Mac– Federal Home Loan Mortgage Corp– Semi Governmental Purchaser of First Mortgages

(Recently Nationalized)

• FNMA Fannie Mae– Private Corporation dealing in the purchase

of First Mortgages

• Forbearance– The waiting for payment of a debt by a creditor

after the debt becomes new.

• Foreclosure– A proceeding in or out of court, to extinguish all

rights, title, and interest of the owner of property in order to sell the property to satisfy a lien against it.

• HUD– US Depart. Of Housing and Urban Development

• Notice of Default/of Trustee’s Deed– The official recorded document acknowledging the

missed payments of the borrower, an intent to sell the property to satisfy the lien and the date time and place of the sale.

• Short Sale– A sale of property which includes some

forgiveness of debt by the lender under a mortgage or deed of trust. The amount of debt forgiven may be considered income to the seller and taxable.

Janette Waller • Vice President• Maricopa County Manager• JWaller@firstam.com

Michael Oman• Account Manager• REO Services• Arizona - Nevada• MOman@firstam.com

Document AppendixWe have included clips from various REO addenda. Each REO seller is unique. Please review all contract documents with your client to best understand your rights and responsibilities with any REO transaction. Thank You.

No Warranties - As Is

No Warranties - As Is

Inspections and Repairs

Inspections and Repairs

Financing Time Frames

Financing Time Frames

Financing Time Frames

Closing Date Changes

Closing Date Changes

Delayed Closing Penalty

Delayed Closing Penalty

Seller Concessions

Seller Concessions

Seller Approval for COE

Sellers May Extend COE

Preferred Title Company

Cancellations

• Inspection Contingency – Be sure that you know what the Sellers’ Addendum

indicates is necessary, i.e. copies of inspection reports, etc. along with written notice

Cancellations

• Financing Contingency – Again, be sure you know what the Sellers’ Addendum

requires to cancel, i.e., 1003, Credit Denial Letter & Written Notice 1003, etc.

Thank You Realtors®!