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It stands for “Real Estate Owned”. It refers to an accounting line item on a company’s asset information. It is property that the company owns, or is holding as an asset. In this case the bank owns the property. You can easily determine what the bank paid for the property by looking up the tax record and looking at the last sale amount.

What is an REO property? 

Mortgage Forgiveness Debt Relief Act of 2007

You may CLICK on the link below to view the IRS page that goes over the Mortgage Forgiveness Debt Relief Act of 2007.  It is because of this program that it becomes more advantagious to short sale because it looks better on your credit than a foreclosure, but the forgiveness still applies. 
 
http://www.irs.gov/individuals/article/0,,id=179414,00.html

Short Sale vs. Foreclosure: Which is the Better Option?

Losing your home to foreclosure due to an inability to keep up with your monthly mortgage payments is one of life’s most unpleasant experiences. It is also an event that keeps on affecting you long after your home is history by devastating your credit score. Regrettably, most people cannot be 100% sure that they will remain safe from foreclosure because they can’t foresee the unexpected. Occurrences such as serious illness, a major accident, divorce or job loss can happen to anyone. So it’s a good idea to understand the available alternatives should the worst occur.

What is a Short Sale property? 

A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens' full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any shortfalls on the loans, unless specifically agreed to between the parties. However, in California, legislation was passed to preclude deficiencies after a short sale is approved. The same is true of lenders on first loans and lenders on second loans — once the short sale is approved, no deficiencies are permitted after the short sale. (SB 931, SB 458 - Calif. Code of Civil Procedure §580e).

 

A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower. Both often result in a negative credit report against the property owner.

 

Real estate industry data indicate that there were 2.2 million short sales in the United States during the period of the subprime mortgage crisis.

What is a Deed in lieu of foreclosure?

A deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.

 

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts his/her credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession, lower risk of borrower revenge (metal theft and vandalism of the property before sheriff eviction), and additional advantages if the borrower subsequently files for bankruptcy.

 

If there are any junior liens a deed in lieu is a less attractive option for the lender. The lender will likely not want to assume the liability of the junior liens from the property owner, and accordingly, the lender will prefer to foreclose in order to clean the title.

In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair value of the property. Other times, lenders will agree since they will end up with the property anyway and the foreclosure process is costly to the lender.

 

Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. This will enact the parol evidence rule and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.

 

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

The Home Equity Theft Prevention Act has created some confusion regarding this frequently-used method of settlement. It is unclear whether HETPA applies to deeds in lieu of foreclosure since there is no clear exclusion as there is for a referee's deed, for example. The 2-year right of rescission is not a risk that banks or title insurers are comfortable with, especially given the complexities of compliance, so many banks and title insurers in New York are not willing to work with deeds in lieu.

What is a Broker Priced Opinion (BPO)? 

A Broker’s Price Opinion is the process a hired sales agent utilizes to determine the selling price of a real estate property. BPOs are popularly used in situations where lenders and mortgage companies believe the expense and delay of an appraisal to determine the value of properties is unnecessary. A financial institution will order a BPO from a Real Estate Broker in which the broker will do a drive by BPO or an interior BPO.

 

The price from the BPO is entered into a 1-3 page BPO report, which includes; neighborhood analysis of the property, comps (comparable properties), and local as well as regional market information. The process of deciding a price is similar to a CMA (Comparative Market Analysis) and also a residential real estate appraisal. Some factors that will affect the price of a property in a BPO report are the values of similar surrounding properties, sales trends in the neighborhood, the amount of repair or preparation the property needs to be put up for sale.

 

A Financial institution may order a BPO for:

  • REO property (Real Estate Owned property)

  • Foreclosures

  • Short sale

  • An addition or a cross check to an appraisal

  • Home Equity Loans and Home equity lines of credit of less than $250,000

  • Appeals to get rid of PMI (Private Mortgage Insurance)

  • Diligence for Financial Institutions

  • A selling/purchase price for a portfolio of home loans (usually for thousands of loans)

What is a Comparative Market Analysis (CMA)? 

Comparative Market Analysis (CMA) - The CMA will help you determine the value and/or list price for your property. A CMA can also be useful for Buyer(s). When you're ready to write an offer is your Realtor checking; to make sure that the list price and/or your offer price is in conjunction with the current market value of the property of interest? In other words are you offering/paying fair market price?

 

Comparables (or comps) is a real estate appraisal term referring to properties with characteristics that are similar to a subject property whose value is being sought. This can be accomplished either by a real estate agent who attempts to establish the value of a potential client's home or property through market analysis or, by a licensed or certified appraiser or surveyor using more defined methods, when performing a real estate appraisal.

 

Comparables may also be used when performing a "Comp Check", which is a slang term referring to a simple analysis, usually performed by a real estate agent or broker, to estimate a potential range of selling prices or values.

What is a HUD-1?

The HUD-1 Settlement Statement is a standard form in use in the United States of America which is used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for the purpose of purchasing or refinancing real estate. HUD refers to the Department of Housing and Urban Development.

 

The borrower has the right to inspect the HUD-1 one day prior to day of settlement. The form is filled out by the settlement agent (Escrow/Title Officer) who will conduct the settlement.

 

Since 2010, the HUD-1 settlement statement also contains what is referred to as a Good Faith Estimate or GFE. This additional set of figures specifies estimated settlement figures provided by the lender upon application of the loan.

Borrowers may compare their Good Faith Estimate to the HUD-1 Settlement Statement and ask their lender or broker about any changes.

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