Naples Foreclosures Frequently Asked Questions
This is a collection of the most common inquiries we receive and often answer. Read and understand these responses so you can be an educated buyer when taking advantage of the Naples distressed market.
Question 1: What is a REO bank owned foreclosure? Answer
Question 2: What is a Short Sale? Answer
Question 3: How is buying a REO different from buying a home from a regular private party resale? Answer
Question 4: Does the bank list the property for sale or do they have a broker list it for them? Answer
Question 5: What happens when the bank receives multiple offers? Answer
Question 6: What do bank owned properties usually sell for? Answer
Question 7: How does a bank choose an offer? Answer
Question 8: Do I have an inspection period? Answer
Question 9: Once a bank accepts an offer, can the buyer back out? Answer
Question 10: Does the title to the property come free and clear? Answer
Question 11: Does the bank provide any disclosures about the property? Answer
1. What is a REO bank owned foreclosure?
REO stands for Real Estate Owned or some say Real Estate Offered. An REO is lender owned, meaning the bank owns it, and the borrower (the previous mortgagor) has no legal rights to the property. The bank has taken the property back from the borrower through court action. Foreclosure is the process by which the bank repossesses the property from a borrower in default. We loosely use the term foreclosure to describe these properties, but they should really be referred to as REOs, bank owned, lender owned, corporate owned, bank repossessions or bank repos.
2. What is a Short Sale?
A short sale is when the borrower is upside down on their loan and in a desperate attempt to avoid a foreclosure they try to sell the property for less (short) than what they owe on the property through a negotiation with the bank. The intended end result is a short sale. In most cases, the homeowner will try to price the property aggressively to draw attention and bids. Once an offer is secured, the homeowner will approach the bank, often with the help of their agent, attorney and/or mitigator, and try to come to an agreement with the bank. The bank, or lender(s), will require that the homeowner complete a Financial Information Sheet listing current income and expenses, assets, etc. to prove they are unable to continue making payments on the loan. They typically expect a letter of hardship explaining why the homeowner is unable to continue paying. The bank can take from 60 days to well over 12 months to process this information and begin negotiation. Although they are getting better at administering short sales, most are not successful, leaving buyers and agents frustrated and disappointed when a potential sale falls through. There are many reasons why a short sale may fall through: 1. The homeowner and their broker set the price, not the bank. Remember, that neither party setting the price has any authority to accept a price less than one that will satisfy outstanding liens. Since the borrower needs to secure an offer to begin the short sale negotiation, they price the property low to contend with other sales, especially properties that are already bank owned. Naturally, the bank doesn’t often agree with the list price. Once an offer is secured, the bank will order a BPO (brokers price opinion) to see what an appropriate offer price is and how close the current offer is to this appraisal. 2. The homeowner has assets to cover the default loan amount, and the bank, or the mortgage insurer expect the borrower to pay. Many homeowners are choosing to “let their properties go” instead of continuing to pay down a mortgage tied to a property that is worth less than a quarter of what they paid only 4 years ago. 3. Buyer is involved in multiple short sales, so when they decide on which offer to pursue, their other offers are withdrawn. When the bank is finally ready to discuss negotiations and the buyer backs out because they decided to pursue another short sale unbeknownst to the seller, the deal falls through and seller is back to square one in trying to obtain another offer and start the process again.
There are 2 types of short sales: 1. Potential Short Sales and 2. Approved Short Sales
1. Most Short Sale listings are potential short sales (all start as potential). This is simply a classification of where the short sale is in the negotiation process. The underwater homeowner decided to sell their property as a short sale.
2. An ‘Approved Short Sale’ is when the bank reviewed the borrowers financial information, ordered a BPO, considered their letter of hardship, circumstances, weighed their costs of pursuing a foreclosure vs. short sale, and in the end, agreed to the short sale price. In most cases, this means there is a much better chance the short sale agreement will go through and the property can be sold at the borrowers set price, under other conditions negotiated. Again, those conditions, ie. paying a supplemental note and cash to sweeten the deal for the bank, will often break the deal late in the negotiation, adding to the frustration for buyers and their agents. Since short sales have such a small success rate and cause buyers so much frustration, time, attention and opportunity cost, we only focus on short sales that have been approved by the bank. Our search functionality searches for all Active Approved Short Sales where the listing agent indicated the bank approved the price. This is not always accurate, but it helps buyers avoid the short sale deals that have a very small likelihood of closing. 
3. How is buying a REO bank owned foreclosure different from buying a home from a regular private party resale?
The main difference is that when you purchase a regular resale from your neighbor, you can specify conditions on the offer contract – ie. What furniture is included, how soon you want an answer, what seller concessions you expect, etc. Contrary to this, because the bank is dealing with so many assets spread all across the country, that they know nothing about, their systems are set to control the offer process. Banks do not respond to time limits set by the offerer. They hardly ever make seller concessions, and they consider offers based on appraisals and comps, and not emotions. To the asset manager of the bank, they see these properties as addresses on a piece of paper that need to be liquidated quickly at maximum price. Therefore, the offer process is according to their rules, on their terms, superseded and substantiated by their purchase addendums and disclosures. Although this may seem like this puts the buyer at a disadvantage, it is not the case. In fact, the buyer is at a great advantage because they are getting a property at a tremendous value, significantly marked down from recent sold comps in the area.
4. Does the bank list the property for sale or do they have a broker list it for them?
The bank could be anywhere. They may have no ties to Naples, no branches, no employees here and no idea where it is in Florida. The Asset manager for the bank must unload this bad asset quickly, so they solicit the services of a brokerage familiar with this market and often familiar with distressed properties specifically and have them list the property for sale and work on their behalf. The Listing Agent will perform a BPO and get a Brokers Price Opinion, assess area comps, and come up with an enticing price to sell the property fast. The Listing Agents will collect bids and all associated disclosures, deposit verifications, addendums, proof of funds, preapprovals, etc and present them to the bank for the bank’s asset manager to make a decision. The Listing Agent works for the bank in the same capacity we work for buyers – the Listing Agent wants to get the bank, their principal, the best price, and we want to get you, the buyer, our principal, the best price. The Listing Agent and us, the Buyers Agents, work on behalf of our clients or customers and facilitate the offer, negotiation, documents and transaction.
5. What happens when the bank receives multiple offers?
Since these properties present such great value and they are priced aggressively, they draw the attention of many buyers. In many cases, the bank will receive multiple bids on the same property. When they do, they will let the offers accrue until they set a point where they stop the initial bids, and notify all bidders that they are in a multiple offer situation and they request the bidders final highest and best offer. The bank is not obligated and will not disclose how many offers they have, what the other offers are, or what type of offers they are (mortgaged or cash offers). At the time the bank requests all highest and best offers, they will typically set a due date and time for these offers. Buyers will have an opportunity to withdraw their bid, remain at the current bid amount or improve. In most cases, buyers typically improve at this point to try to win, which can spur bidding wars. However, bidders are only given one opportunity to offer their highest and best, and an offer is chosen from this lot if bids.
6. What do bank owned properties usually sell for?
In most cases, at least Asking Price or List Price. This is not because these properties are worth any less, this is only because banks set the price so low to generate interest that it gives the appearance the properties are selling for inappropriate prices, when in fact, the prices are very appropriate and reflect an accurate depiction of where the market is. A property is only worth what someone is willing to pay, and since buyers are willing to pay for REOs because of their aggressive pricing, they will continue to be the best indicator of prices until the bank owned inventory is depleted. In 2009, the average closed sale price as a percentage of list price was 103%. In other words, REO bank owned Naples foreclosures sold for more than asking price (on average) at a 3% premium. In the first quarter of 2010, REOs are selling at 101% of list.
The bank owned home to the right sold for 100% of list price in August of 2010. This is the case for most bank owned homes as the average selling price as a percentage of list was over 100% in 2009 through 2010.
7. How does a bank choose an offer?
This can only be answered accurately by the bank. Typically, banks favor cash offers over financed offers. They also favor a buyer who is willing to close quickly and makes a large, good-faith earnest money deposit.
8. Do I have an inspection period?
Yes. Typically 5-10 days (in most cases 7 days), the buyer may inspect the property. Most buyers hire an inspector to go through the home and look for any major problems. Most distressed properties have some handy man small work required, and this is expected, so inspectors are expected to notify the buyer of any major defects that may change their opinion of the property. The contract may state otherwise, but the answer above describes a typical contract. The terms of the inspection period and buyers right to cancel are typically explained in the Inspections section of the contract and may vary.
9. Once a bank accepts an offer, can the buyer back out?
Yes. The buyer can back out during the inspection period if they are not happy with what they uncovered during the inspection. Also, upon acceptance, if the property is within an association, they will be given condo or homeowner association documents to review. Upon receipt of all these documents, the buyer has a 3 day right to rescind period (this is Florida law). These documents include the Articles of Incorporation, Declaration of Covenants, Rules and Regulations, Bylaws, Frequently Asked Questions and Most Recent Financials. Also, if the lender is unable to finance the property, they will furnish the buyer with a letter stating this and the buyer would present this to the bank stating the contract is voided since a mortgage commitment couldn’t be secured. This is not a process that the borrower controls, but rather the lender assessing the feasibility of the loan. The terms of this situation are explained in the Mortgage Contingency section of most contracts and may vary.
10. Does the title to the property come free and clear?
Yes, the property will be transferred to you free and clear of all liens. There will likely be unpaid assessments such as taxes and HOA fees. These are to be paid by seller at closing. Buying an REO is different than buying a home at the courthouse at public auction.
11. Does the bank provide any disclosures about the property?
The bank does not know anything about the property. They lent money against the property and repossessed the property by court action for non-payment. So, any defects are to be found by the buyer during the inspection period. This is why it is critical to have a good inspector.
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