Burbank Real Estate Blog

Ever wonder what the difference is between a foreclosure and an REO or real estate owned property?

A foreclosure is a legal process in which the owner's right to a property is terminated.  It usually involves a forced sale of the property by a public auction to repay whatever debt is owed on the property.  Real Estate Owned (REO) is real property that has been foreclosed by a lender and is now owned by the lender due to an unsuccessful sale at the public auction.

Here are some facts:

• A foreclosure property goes through a foreclosure auction which is usually held on an assigned date on the steps of the county court house.
• Foreclosure property buyers need to be able to purchase the property for CASH.
• At auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney conducting the sale, for the lender.
• Foreclosure property buyers inherit all unpaid liens, including mortgage debt, taxes, construction loans, home equity lines of credit, and possibly a second or third mortgage.

On the other hand, an REO property is:

• REO property is already owned by the bank.
• Home buyers are able to get a regular mortgage or loan on that property. All cash is not needed.
• REO properties in most instances come with clear title.

Some things to look for when purchasing an REO or already foreclosed property:

1. Work with your realtor and the Title Company representative to make sure that the title to the home you're buying is free and clear.
2. Understand where the pricing is in your market so you can submit a viable purchase offer. Your realtor will look at the local market conditions and historical trends prior to submitting your offer to the bank in order to make sure you have submitted an offer with appropriate pricing.
3. Banks do NOT provide many, if any, disclosures, so be prepared for some surprises.  Additionally some banks will require you to sign their private addendums.  Make sure you read each item carefully as you may not be comfortable with their terms.
4. Make sure that all home inspections are completed - don't forget a sewer line inspection - prior to close of escrow.  In fact all inspections should be completed during the first 17 days of your escrow period in order to give you plenty of time to remove contingencies.   Some banks are allowing for certain types of repairs so you may be able to ask for credits.
5. Be aware that banks will charge higher loan rates on investment properties.  So if you are thinking about buying an REO property as a second home, make sure you check out the rates ahead of time and speak to your CPA.

Image via Wikipedia 

Housing Tracker is predicting a trend of -23.9% for Los Angeles area home prices and Homepredictor.com is prognosticating a 21.7% drop in prices for the Los Angeles area. Many economists are predicting that housing will not rebound in 2009. But how do you know what your area will experience?

Whether looking at Burbank or the San Fernando Valley, if you have followed real estate home sales for any amount of time you know that neither gains nor losses are ever uniformly distributed throughout a city or county. Certain areas experience the majority of the gains, other areas will experience more of the losses and it’s not always easy to predict.

 The reason for homes in a particular area to be hit hard on the up or downside depends on many factors. From a macro economic standpoint things such as level of unemployment, industry strikes, bank lending standards, ie loose or tight, whether interest rates are headed up or down and how many businesses are entering or leaving an area all play a major role. On a micro level, you need to consider the accessibility of an area to transportation and jobs, condition of houses, specifically condition of the home being sold, curb appeal etc. Is your area undergoing gentrification or is it deteriorating?

Price is the one thing that sells in today’s market, but having said that, I have worked with several buyers who preferred paying a little more in order to get more of a turnkey or move in ready house.

If you are thinking about or need to sell your home in today’s market, be prepared to compete with the vast numbers of foreclosures on the market and :

 Be prepared to do a pre-sale home inspection to avoid surprises when you are in escrow.

•  Fix items that buyers will want fixed, or be prepared to negotiate the price down during escrow. Anything safety related such as electrical issues, foundation issues, roof repairs etc. will become a reason to negotiate a credit.

 If you are a home buyer there are the obvious considerations:

 Getting pre-qualified so you know how much home you can afford.

• Doing your homework on different areas so you can focus your home search.
• Condo vs. House…..consider association fees and proximity of neighbors.

 Then there are the not so obvious discussions:

 If you are married or purchasing a home with a partner make sure you are all on the same page regarding issues such as how much work you are willing to put into the home to fix it.

• Will you hire someone or do the work yourself.
• Are you ok with doing the work over the span of several months or several years?
• Are you willing to make the time commitment required to fix the house while living in it? Not everyone has the patience to handle the turmoil of a remodel with grace.
• Who will be in charge of getting the estimates, making actual decisions on paint, counter tops etc.
• Do you have a process in place to accommodate the flow of information and more importantly, settle disputes.

 My point in bringing all of these issues up is that in today’s market, sellers have to compromise. Sellers are compromising on price, having to make certain repairs and buyers are compromising on condition of property, to a point. If it’s an all out bargain most buyers will come out from the sidelines, evidenced by the myriad of multiple offer situations we’ve seen over the past few months. But with so many properties on the market, and more foreclosures coming online it’s important to know your market and pricing.

 There are both bargains and overpriced properties out there, it’s important to know the difference and your parameters before you decide to purchase or list your home.