REO Homes in Northern Nevada: What is an REO Home, Anyway?
First, here is a technical definition of a Northern Nevada REO: Northern Nevada REO properties, also known as Real Estate Owned properties, are a type of property owned by a lender after an unsuccessful sale attempt at foreclosure.
Why doesn’t every property sell at foreclosure (sell on the courthouse steps?)
The lender typically sets the opening bid at a foreclosure auction for at least the outstanding loan amount. If the outstanding loan amount is more than the Northern Nevada home is worth, then no bids are placed, and the auction sale is unsuccessful. This results in the ownership of the home reverting back to the bank involuntarily, where it becomes another asset in the banks REO (Real Estate Owned) portfolio.
How does a home become a Northern Nevada REO?
Usually, the path to REO begins with a homeowner in financial distress. The Northern Nevada homeowner may have had a loss of income, experienced a layoff, a divorce, a major medical issue where many bills have accumulated, or even a death of a spouse. In some cases, some homeowners who owe so much more than their home is worth because of the timing when they bought, even if they do not have a financial hardship, they stop making payments on the home. This is referred to as a strategic default.
Once the homeowner stops making their mortgage payments, the home goes into a pre-foreclosure status with the bank. This is the time that the homeowner can negotiate several ways to bring the loan back into good standing, and thus “cure the default”. The ways a Northern Nevada homeowner can cure their default are:
- Forbearance. If the loss of income is temporary, meaning the homeowner lost their job but found a new one, the bank may negotiate a forbearance. This means they will postpone the foreclosure action to give the borrower time to make up the missing payments. Depending on the lender, this can be done several ways. Sometimes the missed payments are tacked onto the end of the loan, sometimes they are spread over several months payments. The forbearance available depends on the specifics of the Northern Nevada homeowner’s situation and the lender options available.
- Loan Modification. If the loss of income is long term, the bank may negotiate a loan modification. A loan modification is where the borrower submits detailed financial information, including pay stubs, tax returns, a hardship letter, and other financial documentation, and the bank evaluates the Northern Nevada homeowner’s ability to pay. The government is now sponsoring the Making Home Affordable Program and the bank can receive incentives for completing a loan modification. The end result is the entire loan is recast, taking the principal owed, changing the interest rate, possibly changing the term of the loan, and completely reworking the loan so that the Northern Nevada homeowner has an opportunity to stay in their home with a payment they can afford that is acceptable to the bank.
- Short Sale. If the Northern Nevada homeowner is not eligible for a loan modification for any reason, the homeowner can attempt a short sale. A short sale is when the seller sells the house for less than the seller owes the bank(s), including the costs to sell the home. The entire Northern Nevada short sale process is lengthy, and in order to successfully complete a short sale, the seller must have a valid financial hardship.
- If none of these options are successful, a Notice of Sale is filed, and the home is attempted to be sold on the Northern Nevada courthouse steps at a foreclosure auction.
The home belongs to the bank. Now what?
Once a bank takes ownership of a Northern Nevada home, they retain a group of professionals to determine the home’s status. There is a series of events that occur, including an occupancy status, a rekeying of the locks to secure the home, a trash out if belongings were left behind, and a Cash for Keys negotiation if people are still living in the home to aid them in moving out. All these things occur with the intent to put the Northern Nevada bank-owned home (REO) on the market and sell it to remove it from the bank’s portfolio.
In Northern Nevada, most banks work with Asset Managers who employ established REO real estate agents to list and sell their properties. Many of these homes have deferred maintenance issues, and if your goal is to buy a Northern Nevada REO, inspections are strenuously encouraged. The bank may be unwilling to make repairs. It’s important to find this out up front because certain loan programs will not lend on a home with many repairs to be made.
The distinct advantage to buying a Northern Nevada REO relates to price. When banks have REO homes in their portfolios, they pay great attention to price. Often, REO homes are priced for a relatively quick sale, and they are priced lower than the other homes listed for sale in the surrounding area.
(Bank Owned Open House photo courtesy of Flickr.com – Nick Bastian)
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About The Author
Christianne Gordon, REALTORÂ®, CDPE, SFR is a Northern Nevada Real Estate Specialist that can assist you with the purchase or sale of real estate in Gardnerville, Minden, Genoa, Carson City, Dayton, and Reno/Sparks.
To search all available homes for sale in the Northern Nevada area, please visit GreatNevadaHomes.com or contact us for a FREE ListingBook account!