10 Things To Look Out For With Bank-Owned Property Contracts
I had the opportunity to attend an excellent “REO Contracts” (aka “contracts on bank-owned properties”) class yesterday presented by Keith Barrett, Esq of Champion Title in Leesburg, Virginia. The class went over some of the main pitfalls of REO contracts and what to look out for as a Buyer’s Agent or as a buyer of a bank-owned property.
Though the REO contracts class was for real estate agents/brokers, everything covered in the class directly affects buyers of bank-owned properties. That’s why I wanted to share the key points of the presentation with you, the home buyer.
DISCLAIMER: Nothing within this post is intended as legal advice or comprehensive answers to all questions, nuances, etc. that may come up in particular transactions. Consult an attorney for guidance. The following points were derived from the material given to attendees as part of yesterday’s REO contracts presentation.
Practical Considerations of REO Contracts
- The buyer is generally getting the benefit of their bargain up front in the price - not in the ease or speed of the transaction
- The seller is a corporate entity, which is both positive and negative. You don’t have to deal with an emotional seller that has unrealistic expectations about property value, etc. On the other hand, sometimes big corporate sellers “do what they want.” These banks are selling properties all over the U.S. making it difficult to conform to local custom and practice
- Approximately half of all REO transactions do not close on time. Have a plan B should settlement be delayed (e.g. don’t schedule contractors to come out to the property the day after settlement, don’t settle on a Friday especially not before a long holiday weekend, etc)
- Some bank sellers take the position that if the REO addendum is silent on an issue addressed in the original offer, that is a conflict and the REO addendum controls/prevails (e.g. appliances, home warranty, seller closing cost credit, etc). If something that you “agreed upon” in the original offer/contract is not listed/addressed in the REO addendum, the bank seller may argue that it’s not part of the contract
- Even though the property is sold “as is”, there may be room for negotiation on a case by case basis
- HOA Disclosure package - by law, the bank seller should provide this
- Residential Property Disclosure Statement - by law, the bank seller is exempt from providing this
- Make sure you change the locks immediately after you take possession of the property
- Consider a longer rate lock period on financing from your lender - about 50 percent of REO transactions do not close on time
- The latest revision to CRESPA (Consumer Real Estate Settlement Protection Act) states that the buyer’s right to choose a settlement agent/title company can not be varied or waived by any agreement - including an REO addendum (effective July 1, 2009)
Once again, this is not intended as legal advice. Every bank’s addendum and every transaction is different. I’ve even seen different versions of an REO addendum from the same bank.
Point is…be smart, read the entire addendum and know how the addendum affects the transaction and you as the buyer (even if that means consulting a real estate lawyer). But also know that bank sellers “do what they want” so even though it may seem “wrong” or “unfair”, there may be little, if any chance of getting the bank to change the language in the addendum.
And if you have any specific legal questions regarding REO contracts or real estate law in general, don’t hesitate to email or call (703.443.1010) Keith Barret, Esq directly - he’s knowledgeable, experienced and tells it like it is (though I have no idea what his hourly rate is as a real estate lawyer).