Do You Know What the Bank Addendum REALLY Says?

If your offer on a bank-owned or short-sale property is "accepted", you will receive the bank's addendum to sign. Many buyers (and their agents) just skim through it, sign on the dotted line and send it back to the listing agent. But they don't truly understand what the addendum says nor how it could affect them.

Some say, "It's just an addendum. The original sales contract has been accepted and those terms are what count."

Wrong.

The bank's addendum always has language in it that says something similar to, "This addendum supersedes the terms of the contract of sale and all other addendum." or "In the event any provision of this addendum conflicts in whole or in part with the terms of the contract of sale, the provisions of this addendum shall control."

In layman's terms…the bank's addendum trumps any and all terms of your original offer which you thought the bank "accepted" and "agreed to". 

Some of the most commons things in the sales contract that are trumped by the bank's addendum are

• contingency time frames
• title/deed
• inspections (or lack thereof)
• termite inspection/remediation
• closing cost assistance/concessions
• transfer taxes/tax stamps
• HOA assessments
• real estate broker commissions

All of these could potentially have a big financial and legal impact on a buyer. Every buyer should fully understand what the terms of the bank's addendum really say and mean.

Let's look at an example…

Let's say you put "10 days" for the financing contingency, but the bank addendum says "buyer's time frame for financing contingency is 5 days". You don't notice and your agent doesn't notice. You, your agent and, more importantly, your lender doesn't notice. Your lender thinks he has 10 days to get final approval on your loan and is working on your loan accordingly.

On day 7, your lender comes back and says, "Sorry, the underwriter found some things they weren't happy with and wouldn't approve you for a loan." You immediately call your buyer's agent and say, "I couldn't get final approval so get me out of the contract using the financing contingency."

Your agent calls the listing agent to get you out of the contract only to find out that you are S.O.L. because the financing contingency is only 5 days per the bank addendum (which you signed 7 days ago). You've gone from getting out of the contract to forfeiting your earnest money deposit.

(This actually happened to a buyer who had a ratified contract on one of my friend's/fellow Realtor's listings)

Btw…If you're wondering whether you can change or counter and of the terms of the bank addendum, the answer is "no". If you want to buy the property, you have to agree to the terms as they are.

If you don't like the terms, feel free to back-out and look for another property. But all bank-owned and short-sale properties have bank addendums that all pretty much say the same thing using different fancy words.

So next time you go to buy a bank-owned or short-sale property, make sure you have a buyer's agent that knows what they're doing and that you read the bank addendum carefully and in its entirety. If you don't, you could get burned badly.

Short-Sales Are Now Taking Even Longer to Negotiate

Yesterday, I spoke with with someone who works at a company that specializes in negotiating short-sales - they told me that the time it takes to negotiate a short-sale has increased dramatically over the past 60 days.

The company she works for has about 100 full-time negotiators on staff. All of them have seen their case files go from 30 or 40 to over 100. This is in part to the rise in short-sales, but it's also due to the banks taking longer to process the short-sales on their end. This holds up the entire process and is a vicious cycle. (It's like trying to get your inbox to zero, but receiving new emails faster than you can hit "delete")

In addition, and more importantly, the loss mitigation officers at the banks are getting overwhelmed. In an effort to keep up with the rise in short-sales, many banks, such as Countrywide, are re-hiring people that they previously laid off from other divisions and putting them in loss mitigation (to negotiate short-sales). Not only are these hires new to loss mitigation, they're getting thrown into the job without any real training. That's not a good combination.

The person I spoke with also said they've been seeing this trend - increased short-sales and not enough (good) help - really picking up over the past two months They also said that it's getting worse by the day.

One could argue that this is an isolated incident - it's only this one person, this one company and only Countrywide. But I've seen short-sales taking longer as well and other agents who work with short-sales are seeing it too.

For example, an offer I submitted on behalf of my buyer was accepted by the seller (borrower) mid-February. A negotiator wasn't assigned to the case until just yesterday and the bank told the negotiator to "take a number" and that they "would get to it when they got to it". That translates to "it'll take longer than it usually does". Most likely, that means that it will take well over the 90 day average.

Yes, short-sales can be great deals and, with real estate inventory way down, they may be some of your only choices. Just remember that you must have lots of time on your hands and plenty of patience when dealing with short-sales - especially as of late.

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