(INSERT BROKER NAME HERE)
REO PROPERTY ADVISORY FOR BUYERS
“REO” stands for “real estate owned” which is how banks and other lenders categorize real property that they have taken back on either a foreclosure or a “deed in lieu” of foreclosure. As a buyer of an REO property you should be aware of several issues that make this type of transaction different from a usual real estate purchase.
1. While REO lender/ sellers do not have to complete a Transfer Disclosure Statement (TDS), it is broker’s understanding that such sellers are not exempt from the common law duty of making full disclosure and that the seller needs to provide: (a) full disclosure of the seller’s actual knowledge about the property; (b) copies of all reports that the seller has about the property; and (c) all other disclosure forms that may be required for the sale of that property such as the Lead-Based Paint disclosure, Seller’s Affidavit of Nonforeign Status (FIRPTA), Residential Earthquake Hazards Report, Notice of Supplement Tax Bill, the Water Heater Statement of Compliance and the Smoke Detector Statement of Compliance. The lender/seller may have little or no knowledge of the property and, as a result, disclosures from an REO lender/seller may be of little value in assessing the actual condition of the property.
2. The lender/seller may take a long time to respond to your offer to purchase and, in the meantime, even consider or accept other offers.
3. The lender/seller may give you a verbal “acceptance” of your offer. Such acceptances are generally not binding, in the absence of other writings sufficient to constitute an agreement to sell. If you are in doubt as to whether you have a binding agreement, you should consult your own real estate attorney.
4. If you commence incurring expenses, such as for inspection reports or for loan applications, prior to receiving a signed purchase agreement, you may be risking the loss of that money, which may not be recoverable from the lender/seller.
5. REO lender/sellers usually will attach a lengthy Addendum to the standard form purchase agreement, or may even require the use of their own contract form. These addenda and contracts have been drafted by the attorneys for the lender/seller and generally are drafted to favor the lender/seller. It is strongly recommended by your agent that you review this Addendum and all contract documents with an attorney prior to signing, because real estate licensees are not qualified or competent to give you advice on legal documents drafted by attorneys for other parties.
6. If you receive such a lender/seller Addendum or contract, read it thoroughly for understanding since it will affect your contractual rights. Some clauses may limit your legal rights in certain circumstances, or limit your recovery against the lender/seller. Some clauses may impose per diem charges for delays in closing. Other clauses may require you to hold the lender/seller harmless and release the lender/seller from certain potential liabilities. Again, your agent strongly recommends that you get any questions you may have answered by your attorney.
7. Many lender/sellers refuse to pay all or many of the expenses of escrow and closing that may typically be paid by sellers, or customarily be split by sellers and buyers. Such expenses may include title insurance, escrow fees, transfer taxes, home warranty plans, costs of repairs to the property, etc. While such items may normally be the subject of negotiation in a real estate transaction, you may encounter a lender/seller who refuses to negotiate or to pay for these items. This should be calculated into your overall cost of purchasing the property when making your offer.
8. Inspections: Most of these lender/seller Addenda and contracts contain an “As Is” clause. Because the lender/seller has limited knowledge of the property, you are strongly recommended to obtain all inspections necessary for you to understand the condition of, and any matter affecting, the property. These should be in the form of inspection contingencies if allowed by the lender/seller. Or, some lender/sellers will allow only informational inspections. If an informational inspection during escrow discloses adverse information not previously disclosed, you are advised to seek guidance regarding this matter from your attorney.
9. Review the Preliminary Title Report for liens, encumbrances and assessments. Many of these will have been expunged or paid off during the foreclosure, or deed-in-lieu, process by which the lender/seller came to own the property. Yet, certain rights of others against the property may continue after the sale to you. You should discuss this possibility and any matters of concern in the Preliminary Title Report with your attorney.
I/We acknowledge receipt of this Advisory
________________________________ Date: ______________, 201__
Buyer
________________________________ Date: ______________, 201__
Buyer