My favorite escrow company- Glenoaks Escrow, posted this article in their blog.

Bank Owned homes, also known as Foreclosures and REO are a significant minority of transactions in today’s market.  These transactions are different from normal sales and it is important to understand the pitfalls!

The following article outlines just one such pitfall- make sure your agent has a complete understanding before you enter into contract on an REO.

Buyer’s of a “bank owned” property, or REO sale as they are often referred to, may come across some verbiage in the Banks Addendum to the Real Estate Purchase Contract that catches their eye: Per Diem Penalty. Escrow Officers are often asked, what does this mean?

Latin for “per day”, per diem has many uses. What per diem is referring to in this instance is in the event escrow does not close by the date set forth in the contract, the Seller can impose a daily penalty to the Buyer for each day beyond the initial agreed upon closing date until the day the escrow officially closes.

The amount of this penalty differs depending on terms of the contract. It can be a percentage of the purchase price or a set daily amount (ie $100 per day). It is important to note, agreements can be made between the Buyer and Seller to waive the penalty when applicable.

One way a Buyer can strive to close escrow on time and avoid penalties is to complete escrow and mortgage paperwork and provide requested documents in a timely manner. However, circumstances may still arise that are beyond the Buyer’s control. In this event, a Buyer should ask their agent to renegotiate the terms of the contract to extend the closing date or to waive the penalty with the Seller and Seller’s agent.

In REO transactions, as with any real estate transaction, it is very important to be sensitive to all time frames in order to alleviate unnecessary charges.

If you have further questions about the Per Diem Penalty, do not hesitate to contact your escrow officer for further clarification or leave us a note in the comments.

You can read the original article HERE.

She was telling of her personal experiences in meeting with a homeowner who decided not to sell because she had to get “more than that” for her home.  Flash forward a couple of years and the home is now in the pre-foreclosure state.

Like Tracy, I have also had my fair share of heartbreaking meetings.  The single Mom who wanted to get enough money to pay for private school.  The embattled couple who just knew one of them would get a job soon.   The musician who was given a verbal offer 3 years ago for $200,000 more than it is worth today.  In each case there was the strong hope that the market would recover and they could get what they want.

Unfortunately, hope is not a good strategy for getting your home sold.

Some of the people I mentioned lost the home in foreclosure. Some are on the brink of disaster.  A couple of them sold their homes for less than they wanted, but they paid off their loans and moved on with their lives, wiser and on the fast track to happier.

The ones holding on are sure the market will turn around- and they are right, the market might be turning as we speak.  But even if that is the case (and most people do not feel the market is turning), it is going to take years (hear me- years), for prices to reach 2008 values, never mind the peak.

Sticking your head in the sand is understandable, but nearly the worst possible thing you can do right now.  Can you afford to stay in this home for the next 5 years?  Are you hanging on, but just by the skin of your teeth?  Are you one bad news away from really being in trouble?

Now is the time to man up and take a good business like view of your home and it’s current value.  It is far better to sell when you don’t have to than to have the sheriff banging on your door.

Out in the Twitterverse, however, I came across an interesting article that posits the idea (documented, according to the author) that this is just a myth.  There is no “shadow inventory of foreclosed homes”.

The article was posted on ForeclosureTruth.com and it tells us that far from having a lot of homes to buy…

As a result, the pendulum has swung to the other side. Instead of a glut of properties hitting the market, as so many have warned, we currently don’t have enough inventory for those who want to buy homes, and homeowners are still in trouble because the so-called solutions (foreclosure moratoriums, loan modification, refinancing) don’t fix the real problem, which is negative equity.

The article is certainly interesting in an of itself.  However, I found the comments even more enlightening.  A fascinating tidbit was in the last comment where the author responds to a critic:

One thing that she may not understand is that it does take some time from the date the property is foreclosed on, until it is listed. Evictions are getting lengthier right now, especially with recent legislation that protects renters from eviction for the remainder of their lease. It also takes a little time to clean trash out, and list the property as well. Properties in this process aren’t being “withheld” by banks in the “shadows”. As we point out it takes banks on average 7 months to resell these properties, and they have less than 5 months of inventory on hand. There is no excess, hidden, inventory of bank owned homes in CA, whatsoever.

Not only is this true, it is not possible to buy the home while it is being “processed”.  A lot of buyer demand can build up while we wait for these homes to wend their tortuous way through the bank’s gauntlet.

What does this mean?  The same thing I always say.  If it is the right time to buy, buy.  If the right house is in front of you for a price you can afford, buy. If you need to sell, sell.  It is not likely to get worse, but, darn it, we aren’t on the cusp of a renaissance either.

Here are the foreclosures available for sale in Glendale- is one of them right for you?