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Simplifying the management of your OREO Properties Simons Informational Services
This page is designed to provide our lender partners with the fundamentals of transferring an OREO property from a loan, all facets of managing the OREO, including file keeping, reporting, and much more. If you would like to recommend a Real Estate Broker that has experience selling Commercial, Construction Projects, Vacant Land, Retail, Hotel, Office, and Residential properties, please visit this site after July 15, 2010. If you are looking for Brokers, visit our new OREO Broker section. Transferring a Property into OREO: When the bank forecloses on real estate collateral and it reverts back to the bank at the Trustee Sale, the transfer of the property should be completed within 24 hours. However, depending on the workload, it is required by month end. The document required to be completed for the transfer is an OREO Transfer Sheet. Once completed, it should be forwarded to the loan department and to the finance department. The OREO Transfer sheet will provide the reader with information about the property, the loan, and the carrying book value. The OREO GL will be debited in the amount of the carrying book value and credited to the loan. The remaining loan balance should be charged off. Managing the OREO: Prior to the property becoming OREO, a real estate broker should have been selected. Once the property reverts back to the bank, the broker should be called and the listing agreement executed. A site visit to the property should have been conducted prior to the Trustee Sale. The information gathered during the visit should include property occupancy, if the property is in need of maintenance, and how many other properties are listed in the area and for how much and how log. If the property is occupied, legal action may be required to complete the Unlawful Detainer Action. Once the initial visit is completed and the bank has possession of the property, it is all a matter of getting the property sold, file maintenance, and reporting. Contact the Tax Collector’s office for a change of mailing address and a copy of duplicate tax bill, if the property taxes are coming due and/or delinquent. Contact the utility companies for basic service required to maintain the property. Monthly visits should be conducted. However, the real estate brokers should be able to manage the property during the listing period. They should provide you with referrals to contractors that provides clean up services, repairs services, and/or monthly lawn service. Utilize your broker for this type of duties. Construction Projects: Financial institutions should avoid taking construction projects back that have not been completed. The cost of managing the property and the uncertainty of clear title is always been a big issue. Financial institutions should make every attempt in selling the note prior to Trustee sale. Creating an OREO File: A basic OREO file should contain
at least 11 tabs. It doesn’t matter how your organization arranges the file, just as long as you keep it uniformed.
Here are the basic tabs:
TSG/Title Policy/Trustee’s Deed Upon Sale/Insurance Auditors need to see proof of ownership. The Trustee Deed Upon Sale is proof. An unrecorded copy is acceptable if the property just reverted back. After a few weeks, a recorded copy will be required. Auditors need to see a clear title report. However, the TSG reflecting the institution being in senior position through the foreclosure process is acceptable. Once the real estate becomes the property of the bank, insurance is required. Proof of insurance is needed in the file as well.Listing Agreements A copy of the listing agreement from the broker should be placed in the file. This will provide the auditors with proof
that the property is being actively listed. With
OREO, a three to six month listing agreement is common. Make sure it is a standard or national real estate listing agreement
form with an expiration date of the agreement.
Offers/Counter Offers Auditors like to see offers on OREO properties, no matter how low they are. No activity tells the Auditors that the property is listed too high. It’s best to never reject an offer, but to counter all offers, no matter how ridiculous the offer. If the potential buyers do not respond or rejected the counter-offer, a brief memo should be attached to the offer with the reason why the negotiating stopped. “Buyer elected not to pursue this property because their best offer was X.” Escrow/ Closing Statements When an agreed upon purchase price had been negotiated and an escrow is open, copies of all escrow documents should
be placed in the file for the auditors to review. When the property closes escrow and the bank receives the wire, a copy of
the closing statement along with a copy of the wire should be placed in this section. Also, it’s best to have a copy
of the recorded Grant Deed in the file to provide the Auditors that title has been transferred from your institution to the
new owner.
Disposal Plan/Reports Disposal Plans are action plans for the OREO property. It provides a written document to the Auditor that your institution has a plan to dispose of the property. A copy of a Disposal Plan is located in the Template section on this website. Also, copies of your Monthly or Quarterly Board or Loan Committee Report should be placed in the file for Auditors to review. This provides information to the Auditors on what is occurring with the property and the progress that your institution is making in disposing of the OREO property.Transfer Forms/Write Downs Appraisal/Environmental This section is pretty much self explanatory. An appraisal not to exceed 6-10 months old should be placed in the OREO. If the OREO property is one that required an Environmental Report, that will need to be placed in the file as well.Bids OREO properties always require some type of maintenance or service. When that is required, have at least two or three bids from companies that are licensed to perform the task. Remember, less is always not better. You need to use good judgment. If a bid comes in very low, suspect something. There is always a catch with a very low bid. Nonetheless, place all the bids in this section to show the Auditors.Legal Expenses: An Expense Log should be created for each OREO property. The log should be the first document an Auditor locates when opening this section.When an invoice is paid, a copy of check that is used to pay the invoice should be stapled to a copy of the invoice and placed in this section. An entry of the expense should be entered into the Expense Log. Auditors like making sure your institution had paid that invoice and they ask for copies of the instrument used to pay that invoice. If it’s a wire, attach a copy of the wire to the invoice.Correspondences: Each letter or e-mail sent or received that pertains to the subject OREO property should be placed in the file.Property Management: If the OREO property is an office building or any type of income producing property, always retain a professional property management company to manage the property. Daily, Weekly, or Monthly reports must be placed in this section. Always pick a property management company that has been recommended to you by another lender or one that is well known.Don't forget about the 1099-A |