Real Estate Frequently Asked Questions

 What is “REO” property?

Real estate owned (REO) property is typically property which a bank or other lending institution or investor has “taken back” through a foreclosure proceeding. The property was used to secure a promissory note that the borrower took out to either purchase the property or re-finance the property. It was secured by a legal instrument the was recorded in the deed record books of the county where the property is located. In Georgia, this instrument is called a “security deed” (other states may call it a “mortgage deed” or “deed of trust”). The security deed outlines the lender’s and borrower’s respective rights. It also spells out what happens in the event of default, typically non payment of the monthly obligation. One of the rights the lender has is to take back the property through a foreclosure proceeding, put the property in the name of the lender, and then sell in the name of the lender. Georgia is a “non-judicial foreclosure” state meaning that all this can be done without the intervention of the courts in most circumstances.

I’m close to losing my house but my realtor® says someone really wants to buy it. The problem is that it won’t appraise at a high enough value to pay off the mortgage. Do I have to let it go to foreclosure?

Not necessarily. Your’s is not an unusual situation. You need to get with your realtor® and approach your lender about a “short sale”. This is a process where the lender agrees to take less than what is owed on the house as a payoff of the balance of the mortgage. Typically the lender will agree to do so under certain circumstances where it can be shown that what is being offered is within the “fmv” (fair market value”) of similarly situated houses in your neighborhood. It doesn’t necessarily mean you overpaid or that the house in bad shape, it is merely a reflection of the broad based decline in value of all property usually brought about by foreclosures in your vicinity. Its always worth a try and lenders today see a value in going with a short sale to avoid the expense of a foreclosure proceeding or the costs of taking and holding( property taxes, HOA dues, etc.) the property for an eventual sale. IT COULD TAKE A LONG TIME TO GET THE LENDER’S APPROVAL so start the process as soon as you can. Your realtor® will know what to do.

My lender has agreed to a short sale by taking around $15,000 less than what I owe them on the balance of my mortgage. Am I all set to close?

Only if the lender has agreed to waive any right to go against you for the deficiency balance. A deficiency balance is the difference what the lender got a closing and what you owed on the mortgage. Let’s say you owed $100,000 on the mortgage and the lender agreed to take $85,000. And let’s say the loan closed and the lender got the $85,000. This means the lender is $15,000 short and you still owe them that amount. They can sue you for that difference, a right given to them under the terms of the promissory note. Just because they agreed to take the $85,000 and release the property to the new owner does not mean they agreed to forfeit the right to go after the deficiency. IT IS IMPORTANT IN YOUR SHORT SALE LETTER OR AGREEMENT with your lender to make sure that they “waive the right to pursue the borrower (you) for any deficiencies of any kind that might arise out of the lender’s agreement to accept the sum specified herein” or something to that affect. Consult an attorney to make sure you’re covered!

My contract specifies a closing attorney but I’d rather use another. Do I have a say in the selection?

Yes. Generally speaking, whoever is paying the closing costs, which includes paying attorney’s fees, settlement fees and title fees, selects the attorney. THIS IS TRUE EVEN IF YOU’RE PURCHASING REO PROPERTY. Sellers will many times try to direct a closing but unless they’re picking up all those costs, its your call. This is done by stating that the seller will pay for title insurance or whatever is you’ll use their attorney. Since this amount is usually a small part of your total closing costs, it really doesn’t make sense to make such a concession if you’re more comfortable with your own selection.

In Georgia its pretty well settled that the closing attorney is theoretically representing the lender because the attorney is making sure the lender is properly secured. The purchaser, however, is also a beneficiary because the purchaser is the one who will actually own the property, subject to eh lender’s security interest. The seller is merely getting a check and is on his/her/its merry way. You’ve got more “skin” in the game do don’t be bashful about requesting your own attorney.