Friday, August 15, 2008

Difference between NOD, NOT and REO

What is the difference between NOD - NOT and REO?

There are many opprotunities today for the informed buyer. The key is making sure you stay informed and understand the processes.NOD- Notice of Default.This is the first official stage in the foreclosure process. The lender has a right to file the NOD at the very first late payment. In reality it’s usually 2~4 late payments before it’s done. The NOD is a recorded notice that the loan is “in default” but it’s not too late to simply pay the amount due and all is well. The delinquent amount will usually include late fees.IMPORTANT: this is only the amount owed to that particular lender. The owner may not have been making payments to the lender that holds the 2nd mortgage (or 3rd) and may even have taxes or other liens overdue that are attached to the property.Most NODs are cured (paid) before they advance to the next step (NOT). This is one reason that the news reports of huge increases in “foreclosures” are nonsense. The news reports include NODs as a part of their foreclosure statistics. A homeowner may have their property go NOD multiple timed before finally getting back on track, and never go NOD again. The news reports should specify what they mean by “foreclosure”. If nothing is done to pay the lender then it’s usually about 125 days from NOD to Auction at the courthouse steps.NOT- Notice of Trustee’s saleThis is when the clock really starts ticking. The NOT is a recorded notice that a trustee’s sale has been scheduled. If all late payments, fees, and penalties are not satisfied (paid) the property will be auctioned off on the “courthouse steps” to the highest all-cash bidder. The minimum amount is usually whatever the lender needs to pay off the 1st loan and other fees. This could mean that the 2nd lender may get absolutely nothing! There is incentive now for the 2nd lender to step up and buy the property at auction to protect their own interests.The “winning” bid, if there are any bids, gets the property as-is, including all liens (recorded or not). Here is where you need to have made sure BEFORE you made that bid exactly what liens are out there. If you need this type of information, contact me, I will point you in the right direction. REO- Real Estate Owned by the LenderMany properties do not sell on the “court house steps” at auction. When this happens, the property deed is transferred to the lender. This is when it becomes an REO. In most cases, lenders will hire the services of a Realtor to list the property for sale on the MLS. Depending on the lender, the list price is typically a price that will cause the property to sell in 30 days, or a “30 day price”. The good news for a buyer is that the property is purchased with normal legal and title protections and free of liens. Recent REOs I have seen are priced more competitively than in the recent past. Most banks are motivated to sell these properties and reduce the amount of inventory they have on their books. So, how do you decide which to make an offer on? Here are some of my own opinions:NODsIf you make a low offer, (at the very lowest side of retail values), but with good financing in place, there are many opportunities available to you in this arena. Many of these purchases will be short-sales. That adds complexity to the deal but also adds incentive for a seller to take a low offer. If they have no equity to protect then they really care more about avoiding foreclosure.There will be lots of competition here. The NOD is public record. Act quickly to be the first offer they see. There will be professional “flippers” out there looking to wrap mortgages, and competing heavily for these properties.Short-sales are very hard to complete in the time constraints imposed by the foreclosure process (about 125 days from NOD), and the banks are overloaded with NODs and they are under staffed in the departments that handle these types of sales.NOTs I don’t recommend NOT properties, unless you are very experienced in purchasing NOTs. You will need to have an understanding or Trustee Sale Guarantees and of Foreclosure Guarantees, and have a working relationship with a title officer at your local title company. If you have cash on hand, make sure to spend some of it at the title company first, there are some great deals possible. Offer a low price and close quickly.REO Basically these are treated the same as any other MLS listing. It’s a little more difficult to hammer-out a deal with a distant lender but not too bad. In fact recently banks have started to reject short-sales and instead are selling the properties after the auction as REOs. The banks seem more open to looking at offers now that they have many more properties to sell. If you know values in the neighborhood of the home, you may ignore the asking price and offer a fair market price.I believe the best deals right now are in the REO properties. However, you must know the market, and be prepared to make an offer. You will have to follow the bank’s procedures in addition to the normal sale contracts and documents. The bank is also not going to give useful disclosures, and is not typically willing to do any repairs, so inspections by experts become critical. Pre-REO An Owner that is currently not in default, but will be soon, is a very motivated seller wanting to sell quickly. Unfortunately, many who bought 1~2 years ago will not be able to sell at current prices without bringing some money to the closing table. Unfortunately, these are very painful deals and the seller is usually forced into a short-sale deal with the lender.Remember that all types of “foreclosure” properties are having an effect on our traditional market today. It has always been wise to take time to discuss with me the many homes on the MLS as well as the “distressed” foreclosure homes. Good deals are out there now the Buyer who know what they want and is financially prepared to move. The deals do not need to be foreclosures to be good deals! About Me

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