NOD/NOT/REO- What should I do with them?

Here is a summary I put together a while back and updated today for a client. It’s interesting to me that my advice from only 2 months ago already needed significant changes. This is a very fluid market, that’s what has created great opportunities for educated buyers.

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 also probably hasn’t paid their 2nd (or 3rd) and may even have Taxes or other liens overdue.

Most NODs are cured before they advance to the next step (NOT). This is one reason that the news reports of huge increases in “foreclosures” are nonsense. A single home may go NOD multiple times and then never again get behind. The new 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.

NOT- Notice of Trustee’s sale

Now 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 aren’t satisfied the property will be auctioned off at the “courthouse steps” to the highest all-cash bidder. The minimum amount is usually whatever the lender needs to payoff the 1st  loan and other fees. The 2nd lender will get nothing! This is a huge incentive for the 2nd lender to buy the property at auction to protect his own interests.

The “winning” bid, if there are any bids, gets the property as-is, including all liens (recorded or not). Title insurance is not available for up to 2 years. This is a significant risk for a buyer at the auction.

REO- Real Estate Owned by the Lender

Many properties don’t sell at the auction so they go to the Lender and become REOs. Normally the lender will use a Realtor to list the property on the MLS for sale. My experience is that the initial listing price is sometimes a bit high. The good part for a buyer is that that they buy with normal legal and title protections and free of liens. Recent REOs I have seen are priced more competitively then in the past. It seems the banks are ready to price lower to get things sold.

My thoughts:

NOD

If you can make a low offer (very lowest side of retail values), but with good financing in place there are lots of opportunities here. 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 quick to be the first offer they see.

Short-sales are very hard to complete in the time constraints imposed by the foreclosure process (about 125 days from NOD)

NOT

I don’t recommend NOT properties, unless the buyer is very experienced. If you have ready cash there are some great deals possible. Offer a low price but a quick close.

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. They seem to be more open to offers since they have many more properties to sell. If you know values for that neighborhood I suggest that you ignore the asking price and offer what you think the price should be.

Probably the best spot now is REO. Know the market, make an offer. We will need to follow the bank’s procedures in addition to normal sale contracts and documents. The bank is also not going to give useful disclosures so inspections by our experts become critical.

The REO lists I send are properties which have recently gone through foreclosure and are now REOs. They actually are not available for purchase until the bank sends it to a local agent for listing. I can usually contact the lender to find out who the agent will be and then contact the agent to get a head start.

Pre-REO

 An Owner that is currently not in default, but will be soon is really motivated 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. Very painful and usually forces a short-sale deal with the lender.

Remember that all of the “foreclosure” properties have an effect on the traditional market also. It’s always wise to take time with your agent (Me I hope!) to look at many homes on the MLS as well as the “distressed” foreclosure homes. Good deals are out there now for any Buyer who knows what they want and is financially prepared. They no not need to be foreclosures to be good deals!

If you need a lender I can recommend Owen Hennefer at (925) 575-1370 or email him at osh@epicrei.com

I can set-up and automatic email for MLS listings based on your specific criteria. I also have a system called Home Buyer’s Marketing Report that you can set-up to track a neighborhood. Even if you plan to buy off the NOD list it’s good to track the current MLS listings so you know values.

If you want to get the weekly lists of NOD/NOT/REO properties please go to the “Free Foreclosures” page