REO BasicsA Training Seminar

Presented by

• This Presentation Will Cover the basic “need toknow” items in an REO transaction from contractto closing

• We’ll address issues and problems throughoutthe transaction and after close

• We will NOT address specific seller issues• Goal is to give all involved parties a better

understanding of how they can service theircustomer better to provide for a smoothertransaction for all

Why REO?• % of current sales/listings• Held inventory• Cash buyers• Investors• First Time Home Buyers

Why West Title?• In down economy and challenging market

West continues to grow• FNMA Preferred Vendor• LPS Asset Management Services “2009

National Title Vendor of the Year”• We do not have “contracts” with our

sellers, they choose us more oftenbecause of our expertise, experience andcustomer service.

Outline of Presentation• How Property Becomes REO• File Process• Purchase Agreements and Addendums• Code Violations, Assessments, Water & Utility

Bills• Title Commitments and Final Policies• Legalities of What Title Does and Doesn’t Cover• Closing and Closing Costs• Questions and Comments

• How Property Becomes REO– When Property is Transferred– Who orders Title– What else Title Company does

• Overview Of The File Process– Seller Orders Title– REO Addendums Often Name Preferred Title Company

• Preliminary Title• Transaction Completed Quickly• Funds• Cost Savings

– MN is Buyer’s Choice State• Determines if Seller Will or Will Not Pay• New Disclosure Laws for All Loans

– Other Seller Requirements of West Title• “Behind the Scenes” Responsibilities

– “Preferred Vendor” Status

Purchase Agreements andREO Contracts

• REO is Different Than Traditional Sales• Important to Read & Understand Addendum

– FNMA addendum included in handout• Addendum Supersedes MN PA

– Sets Final Terms– Changes Responsibilities & Obligations of All Parties

REO Addendums:– Purchasing Property “As Is, Where Is”– Sets Closing Date, Penalties & Closing

Agent– Allocation of Closing Costs & Prorations– Deed Restrictions– Inspection Timeframes, De-Winterization

REO Addendums:– Purchaser Becomes Responsible For:

• Obtaining Condo Docs• Condition of Property• Code Violations• Conformity to Zoning Laws• Environmental Hazards,• Survey Issues, etc.

– Waiver of Recourse by Purchaser

Completing The Addendum:• Purchaser’s Name(s)

– Must match EXACTLY how they take title• If Business Entity

– Contract Must State Exact Legal Name• Check with Secretary of State

• LO’s: Make Sure Docs Match Contract• Corrections Require An Amendment

– Could Cause Delays• Deed Only to Purchasers on PA

– Cannot add parties w/o amendment signed by ALLparties

– In some instances new contract may have to besigned

Completing The Addendum:• Any Changes to Terms Must Be Done With an

Amendment Signed by ALL– Includes Closing Date Extension if Expired– Types of financing

• Seller Paid Closing Costs– Limited To Actual Costs

• No “Legal To Govern” Verbiage• Loan Specific Documents

– FHA, MHFA or Bond Financing– Submit ALL document for seller to sign together

REO Addendums:• Do Not Assume All REO Sellers Are the

Same• Title Companies Don’t Negotiate Contracts

– Only Follow Negotiated Terms• Earnest Money: Cashier’s Check or Wire• Handout: FNMA Addendum

– Pay close attention to sections 2, 10b, 14, 28,38

REO ASSET

Listing Agent Title Company

Computer/Website/Email

Asset Manager Closing Coordinator

Computer/Website/Email

Listing Agent Title Company

Closing CoordinatorAsset Manager

• Code Violations & SpecialAssessments– Code Violations Are Like Traffic Tickets– All Cities Treat These Differently

• Difficult to keep up• Many posted differently

– TIP: Go To City To Check for Violations• Use Our Handouts: REO Checklist & City Ordinances

– Code Violations Not Covered By Owner’s Policy– Refer to Addendum re. Special Assessments

• TIP: Vacant Building Registration Fees & Renewals– Certified Assessments & Annual Assessments

• Water and Utility Bills – Water and Code are 2 Biggest Post Closing Issues– 20 Day Limit on Unpaid Code Violations and Utilities

• Buyer’s responsibility to transfer utilities to their name• Cannot submit bills >20 days, accounting is closed

– Most Assume Title to Handle– Some Sellers Won’t Allow on HUD

• Per listing contract agents are to pay utilities outside close– Final Water Bills Through Listing Agent– Water and Utility Bills

Title Commitment• Schedule A Consists Of:

– A) Effective Date– B) Proposed Insured: Buyers’ Names– C) Vesting– D) Legal Description

• Comes from Sheriff’s Certificate, whichcomes from info on the foreclosedmortgage

Title Commitment

Title Commitment• Schedule B Consists Of:

– A) Schedule B-I Requirements– Requirements to be met at closing to insure and

close the transaction» Required deeds to complete chain of title» “Clouds” on title that need to be cleared prior to

closing (ie. prior mortgages)» HOA letters and liens

Schedule B-I

Schedule B-I (con’t)

Title Commitment

• Schedule B Consists Of (con’t)– B) Schedule B-II Exceptions

– Exceptions that will appear on the final title policy aswell as status of real estate taxes, specialassessments (levied and pending) and anydocuments recorded on the property such aseasements, restrictions, covenants and declarationsetc.

– These exceptions will carry over to final policy

Schedule B-II

Schedule B-II (con’t)

Title Commitment• GAP Coverage

– Merely title insurance coverage from effective date tothe date documents are actually recorded at county

– Provided on every West owner’s and lender’s policy ifWest conducts closing

• Owner’s Policy– Issued after recorded docs back from county– Schedule A shows buyer vested in title & legal

description as per recorded deed– Schedule B shows all exceptions to coverage

Title Commitment• Title Orders

– Order is Needed From Buyer’s Lender ASAP to Startthe Update Process

– “Official” Order Form Not Needed, But We Do Need:• A) Mortgagors names and contact information• B) Loan amount• C) Property address• D) Let us know if you need plat coverage• E) CPL info• F) Contact info for where to send title commitment• E) West order form in handout…just in case

Selected Policy Coverage AndExclusions

• 2006 ALTA Owner’s Policy and Loan Policy *handout– Government Regulation– Exercise of Police Power– Policy Jacket

• West Disclosure & Compliance Agreement *handout– Items To Be Addressed Prior To Closing– Buyer’s Responsibility Post Closing

• City Ordinances Regarding Sale of Property *handout

Code Compliance• Code Compliance

– City of Minneapolis• Truth in Sale of Housing (TISH)• “Acknowledgment of Responsibility”• Condemned, Vacant or Boarded

– City of St. Paul• Code Compliance• Categories 1, 2 or 3

– City of Brooklyn Park• Require Escrow to be Held By Title Company• All Escrows for Code Compliance Must Appear on HUD

Title Issues• Title Curative 2 Step Process

– Task Based Software, 2/09– Title Cleared on Asset After Sheriff Sale– Clear Title to Resolve Issues– After Asset is Sold– Fully Executed Contract– Deed Request From Seller is Immediate– Review Title to Clear Any and All Outstanding

Issues

Title Issues• HOA’s, Garages and Legal’s

– How to Tell if There is an HOA– Management Company Info– Garages in Addition to Home– Legal Description from Sheriff

CertificateHelpful Websites• Helpful Websites, Refer to Handout

• REO vs. Traditional Closing– Traditional:

• Seller attends closing• Deed and HUD signed at closing• May be easier to handle last minute items

– REO:• Seller does not attend closing• Deed and HUD must be signed prior to closing• Seller is available via email and websites, occasionally

by phone• Closing coordinator cannot sign anything regarding

contract or make any changes to contract.

Closing

Closing• Deeds

– Sent to seller within 5 days of contract– In West’s possession within a few days of closing

• HUD Approval– Each seller has very different requirements

• Example:– 2 days, no buyer’s numbers– A few hours, must have buyer’s numbers– 48-72 hours, must have buyer’s numbers

» Title needs package or lender’s instructions» Possibly use Good Faith Estimate

– You will not have same requirements on all files– Not all sellers require 72 hrs, timeframes are

company specific

Closing• HUD Approval (con’t)

– Occasionally rescheduling is necessary• West does not take this lightly• Only when absolutely necessary and in best interest of

purchaser

• Scheduling– Schedule early, due to seller’s timelines– Our schedulers are proactive to schedule per

contract– Occasionally exceptions can be made, West will

mediate, but not always possible

Closing Costs• Buyer’s title and recording fees same as

traditional closing• READ ADDENDUM CAREFULLY

– Number one cause of delays are unexpecteditems in contract

• Examples:– One REO seller considers all costs as BUYER’s fees– One REO seller won’t pay any transfer taxes– One REO seller will pay only specific buyer costs

• West neither highest or lowest in marketplace– Many sellers have “preferred” title companies– West deliberately set fees to make sure no buyer

was taken advantage of.

REO Partnership• REO Closings Are Complicated• Many Variables, Constantly Changing• Feel Free to Call Us!• We Want You and Your Clients to Have

a Smooth Transaction

QuestionsAnd

Comments

Thank You

Happy Holidays from Everyone at West Title!