REO DEALS: WHAT WE HAVE LEARNED

April 12th, 2011 at 11:20 pm

As you are all aware, we have been in a market with significant REO activity for a couple of years now. With that experience, we are now able to see the risks and pitfalls that we have to avoid in REO transactions. Specifically, in today’s world it is not uncommon for a borrower who has lost their home to foreclosure to sue the lender over their conduct. The claims typically relate to the foreclosure itself, alleging that notice was incorrect or the sale was somehow deficient. In fact, we have been named in multiple lawsuits against banks with those types of allegations. On the other hand, we have not received any lawsuits arising from the condition of an REO property or the failure to make disclosure in that kind of deal. As a result, we know that it is most important to be very careful during the pre-list phase of an REO deal and, if possible, to stay out of that part of the transaction altogether if possible.

Of course, we know that almost every REO lender expects its listing agent to do a prelist inspection of the house. That inspection is mainly to determine if the property is occupied, if so by who, and whether that person is willing to vacate the property, for cash or otherwise. While we would prefer that the bank do all this work themselves, we know that is not possible so want to remind you of a few things. First, it is alright to view the property from the outside to see if it is occupied. Avoid going inside without the occupant’s permission since that opens you up for a trespass or theft claim. We have had those claims, where the occupant was away at the time of inspection and claims that our agent stole his belongings. As a result, if the property is full of personal belongings, but no one is home, come back a second time before deciding that the home is vacant. Next, if you find the occupant on the property, we understand you need to have contact with them. It is ok to post a Notice on the door or talk to the occupant and find out if they are willing to vacate. However, once they become combative in any way, you need to leave the property and refer them back to the lender. If the borrower or tenant says that they will not leave, or that the foreclosure was in any way improper, do not argue with them. Do not threaten them. Just thank them for their time and leave. Until any issues regarding ownership and possession are resolved, you need to stay out of it and let the bank handle the occupant. You are an agent being hired to sell the property and, while you can go beyond that in simple transactions, you need to avoid conflict. In one of our cases, our agent is alleged to have threatened the borrower if they didn’t vacate the property. Of course, once the borrower put up a fight, the bank backed down and we didn’t even get the listing. But we did get sued. So remember, you can help with prelisting inspections, or negotiate cash for keys, if the process is peaceful. Once the occupant/borrower gets belligerent, it is no longer your problem. It is the bank’s. You back away and wait for the bank to resolve the problem. Then you can do what you do best, sell the property.

As always, please let us know if you have any questions.

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