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Taking Possession of an REO – Foreclosed Property
After successfully foreclosing on a property, the lender or bank must first take possession of it before they can sell it on the open market to recover their funds.
Understanding REO Bank-Owned Foreclosed Properties
When a homeowner fails to make mortgage payments, the lender (usually a bank) may initiate a foreclosure process to recover the outstanding debt. If the property does not sell at a foreclosure auction, it becomes an REO, or “Real Estate Owned” property, meaning the bank or lender now owns the property.
What is an REO Property?
An REO property is essentially a bank-owned foreclosed home. After the property fails to sell at auction—often because the minimum bid wasn’t met—the lender takes ownership, clears any existing liens, and attempts to sell the property.
Taking Possession of an REO Property
Taking possession of an REO property can be challenging, especially when dealing with uncooperative occupants. Here’s how these situations typically unfold and how to manage them effectively.
The Financial Burden of Holding an REO Property
After a foreclosure sale, when a property becomes an REO (Real Estate Owned) property, the financial burden on the lender or new owner can be substantial. While the lender takes ownership in an attempt to recover the outstanding loan amount, the reality is that holding onto an REO property incurs significant daily costs that can quickly add up to several hundred dollars or more, depending on the loan amount and the property’s value.
Ongoing Financial Obligations
One of the primary expenses is the interest on the outstanding loan. Even though the property has been foreclosed, the lender is still responsible for the interest payments on the remaining loan balance until the property is sold. This cost alone can be substantial, especially for high-value properties where the loan amounts are significant.
In addition to interest, the lender must cover various fees associated with maintaining the property. These can include legal fees, property management costs, and expenses related to securing the property. For example, if the property is vacant, the lender may need to hire security services or property maintenance teams to ensure that the property remains in good condition and free from vandalism or unauthorized occupancy.
The Impact of Property Taxes and Insurance
Another major expense is property taxes. The lender is responsible for paying property taxes on the REO property, which can be a significant burden depending on the location and assessed value of the property. Failure to pay these taxes can result in penalties or liens, further complicating the lender’s ability to sell the property.
Insurance is another critical expense. The lender must maintain insurance coverage on the REO property to protect against potential losses due to damage, natural disasters, or other risks. This insurance is often more expensive than typical homeowner policies because the property may be vacant or in poor condition, increasing the risk to the insurer.
The High Cost of Delays
The longer the lender holds onto the REO property, the more these costs accumulate. Every day the property remains unsold adds to the financial burden, eating into any potential profit from the eventual sale. This situation creates a sense of urgency for lenders to sell REO properties quickly, even if it means accepting a lower price than initially desired.
For high-value properties, these daily costs can easily exceed several hundred dollars, making it imperative for lenders to act swiftly. Delays in taking possession of the property, dealing with uncooperative occupants, or handling legal issues can all extend the holding period, significantly increasing the total cost to the lender.
Dealing with Uncooperative Occupants
When a property becomes an REO, it’s common for the former occupants—whether they are the previous homeowners or tenants—to resist vacating the premises. These situations often lead to delays and complications for the new owner or the bank trying to take possession.
Voluntarily Vacating the REO Bank-Owned Foreclosed Property
There are some instances where the person or persons who lose the property to a foreclosure sale willingly cooperate with the new owners or agents and agree to a “cash for keys” arrangement. A “cash for keys” deal is when the bank offers the occupants money to move out of the property.
Challenges with Previous Owners or Occupants
After a foreclosure sale, the property is legally owned by the bank or lender. However, if the occupants refuse to leave, taking physical possession of the property can be challenging. The former occupants may engage in “catch me if you can” tactics, such as refusing to leave, ignoring eviction notices, or even vacating and then re-entering the property. These actions can lead to legal battles and delays in securing the property.
Taking Possession of an REO Property in Sherman Oaks
At LA’s Premier Property Maintenance, we’ve dealt with numerous situations. Where former property owners refuse to vacate their homes after a foreclosure. Here’s a recent case we handled in Sherman Oaks, California.
The Initial Situation
The lender’s occupancy checks and conversations with neighbors indicated that the property was unoccupied. However, neighbors mentioned that large parties were occasionally held at the house, causing significant disruption with strangers, loud music, and illegal activities like drug use.
Attempt to Take Possession
The lender decided to rekey the property and hired a local locksmith for the job. As the bank representative and locksmith were gaining entry. A group of aggressive individuals arrived. Claiming they were living in the house. The bank representative asked for proof of residency. Such as a valid ID with the property address, but the individuals refused to cooperate. They did not provide any documentation.
Discovery of a Rental Scam
During the lender’s due diligence, they discovered that the property had been listed for lease. Unfortunately, this is a common tactic where scammers target vacant, foreclosed properties. They change the locks, advertise the property at a discounted rental price, and lure in unsuspecting families with urgency tactics, claiming other renters are interested. These scammers take as much cash as possible from the victims and then disappear, leaving the innocent families with nothing.
Working with LAPD – Law Enforcement
During my occupancy check of the Sherman Oaks property, I noticed a motorcycle and a vehicle behind a chained and padlocked gate—an unusual sight for the neighborhood. Suspecting foul play, I contacted LAPD to explain the situation: the property was foreclosed, the occupants were playing games with a $3-4 million property, and the real owners were losing significant amounts of money. I also suspected that the scammers were in the process of renting out the property and taking cash from another innocent family.
Securing the Property
The LAPD informed me they were already aware of the property due to numerous complaints from neighbors about late-night parties, loud music, and drug activity. We requested a Civil Standby from LAPD to be on-site while we took possession of the property.
LAPD met us at the property, where the bank representative provided all necessary documentation. After reviewing the situation, LAPD instructed us to gain entry. According to guidelines. An occupied property should have clothes in the closets, a refrigerator. Other signs of residency. However, the house was empty—no refrigerator, no clothes in the closets—so the bank representative determined it was appropriate to take possession.
We changed the locks. Removed security camera. Took out the electrical breakers to prevent the scammers from easily returning and using the property again. Our actions helped the bank save significant time. Money on legal and court fees, and we likely prevented another innocent family from falling victim to a rental scam.
Hire LA’s Premier Property Maintenance
At LA’s Premier Property Maintenance, we are regularly hired to take possession of foreclosed bank-owned REO properties. We handle the entire process, from dealing with uncooperative occupants to securing the property, saving our clients time and money.
Click the link below for basic foreclosure information:
https://selfhelp.courts.ca.gov/foreclosures