Frank: Beware also of the asset manager changing the deal. Literally, changing things like closing dates etc. I just went through one with Countrywide in November when this was done. If an agent did this, it would be fraud and jail time.

You are 100% right. I am doing a couple of REOs now and each "addendum" has its pros and cons.  You must read them over carefully and know you state laws. 

One agent tried to tell me that the bank would not pay the HOA fee to obtain the HOA docs. This agent asked me if I was new to the business and I replied no.  He told me the bank never pays.  I then pointed out the state law for HOA and the state requirements after a couple minutes and quoting the exact law he advised me I was correct.  

The next agent is offering a credit of $200 if the buyers use his title company.  There is some advantages as the bank has done some legwork.  But $200 bucks is a drop in the bucket knowing the bank is getting a kickback.

Make sure you have your clients best interest at heart.  When in doubt ask a season agent to help.

Frank - I know where you are coming from.  The ones I have done so far have been protecting the banks not my buyers.  I do have the Attorney I am working for review the bank's addendum and it is very one sided but if your buyer doesn't sign it and agree with it the bank will not accept it.  I also was in a bidding war on one and it boiled down to whether or not we used their title company and give them a chance to do the lending if they can beat my buyers current rates, etc.  I am not that comfortable bringing my buyers to foreclosed homes unless I explain the entire addendum to them and they know what they are getting themselves into. I have had the banks approve home warranties and termite issues but maybe only by luck. and also seeing Jim's comment, I also had that issue with Countrywide, where they changed things on the contract and did not pass back for my buyers to approve.  So watch out for that too.

Hey Stella,

True, they might not allow changes to the contract, but we were able to get that $3,000 hidden tax removed.

Alot of those hidden or not the norm items can be changed if the buyers counsel asks with grace and does not just take a pen to the contract.  If that happens usually the deal is dead.

My experience has shown me several things:

The banks do not want to do things that are not required by law.  If the law requires something (HOA docs) -- then the bank will (typically) pay for it. 

So far as the termite-- they sometimes pay for an inspection-- But it is IMPORTANT to negotiate this issue upfront.

If the REO agent is a decent one-- they will work with you and tell you what you need to negotiate up front and not upfront. 

For example: If you want the (broken) window repaired and the termite report/inspection paid for by the seller -- as a loan issue-- work it into the issue. 

Most of my asset managers want the deal to close -- and won't mind working on some minor repair issues, if it will close the deal.  However, if it is not negotiated up front-- then it will most likely not go out and do it -- based on being pressured.

A perfect example-- We had one that the buyer wanted the whole house recarpeted-- and then some other issues came up with the appraisal.  The seller gave a repair credit to get this work done.   

The most important key to working a REO deal is to communicate effectively.  If you see something that might cause loan approval-- write it into the contract -- and then bring it to the attention of the listing agent. 

Oh, and I don't think that the banks get a "kick-back" for trying to push their closing agents.  Typically, the closing agents work for a discount, and they would like to try to make up for it on the buyside (a loss-leader).

These are just my thoughts,

-Jason

Thanks Jason.

Another trick, that is more for Short Sales, is the banks will tell the seller "Yes we will consider a Short Sale, IF you keep making your payments." And then 2 months go by and the bank refuses to return phone calls. Why? Because they know it will go into foreclosure, and they get 3 or 4 months more of payment! $10,000 pure profit by stringing them along. Sometimes with mortgage insurance, it is MORE profitable for them to let it foreclose, than to eat a $50k or $100k loss.

Frank

Thanks Frank - I will have to look out for that hidden tax.  I don't want that to happen to any of my clients.

Frank, Sometimes I and the listing agent,if it's not my listing,have had to explain state law to the asset manager as they may be on the other side of the country and things are different in their state but as with everything the approach with them is critical.I have received addendums that changed or left out things from the contract and always have gotten the AM to correct them. The addendums always favor the bank and like Jason said negotiate up front if at all possible and read those addendums with a magnifying glass.The problem I am starting to run into from the buyer side is agents that are new to REO who get a listing and here I come calling to get info so I can write a clean offer that has everything needed to make the deal work when sent to the AM and the agent does not know what is required or what the bank will or will not pay for etc.Then they get offended because I need answers and act like I'm the enemy.Happened two days ago but in spite of the other agent our offer was accepted and now the listing agent is calling me to voice her opinion about her dislike of the AM.Strange thing is the AM called me and I found her to be quite pleasant but you can bet those addendums will get a good looking over.

I gotta tell you - I hear what everyone is saying - but I do a lot of REO work. I have 35+ REO listings, and have at least 8 in Escrow right now. I use these numbers not to brag, but to show that I am at least a little experienced in this area.

I have never had an Asset Manager back out of a deal.

I have never seen a Bank Addendum with a hidden fee of $3,000. I do see them where the Bank retains the right to charge $100 per day for missed closings, but I have yet to see them do it. I think that will change; I have had 5 contracts that are past the closing date. In all 5 cases, the Buyer was using a Broker rather than a direct lender, and the Broker just could not get it done on time. I have yet to have a contract in which the Buyer is using a Direct Lender not close on time. I think the Asset Management Companies are getting frustrated and will start charging the per diem.

Most addendums are all about the "As Is". My take on it - if a buyer is not interested in buying a property "As Is" they should not be looking at foreclosures. 

I have never had a Bank or an Asset Management Company care one way or another who the Buyer closes with.

Yes - they want the Buyer to pay for the Termite Inspection. It's $100 or less. 

Every Bank and Asset Management Company that I deal with - I get same day responses to offers and inquiries. If I get an offer in my hand on Monday, I can usually have it Ratified by Thursday or Friday, assuming the Buyer moves fast enough. 

Whenever I have seen something in an Addendum that may seem like it contradicts VA Law, I have asked, and the answer has always been the same. VA Law can not be superceded, we just can't have 50 different forms. 

Kevin McGrath

www.fredva.com 

Hey Kevin,

I'm glad that we have an expert on board.

As for the termites, I wasn't talking about who pays for the $35 inspection, I was talking about how the main contract by default has the seller pay for any damages found (oftentimes $1,000 to $2,000), but the addendum transfers that risk to the buyer. Which is fine, but the listing agent shouldn't say "the bank agrees to your contract, but sign this addendum" that says something different.

And for the $3,000 tax, none of your banks have contracts that make the Grantor's tax be paid by seller?

So maybe the fault is more the listing agent. To say "yes" to our contract, and then say "oh but you have to sign this addendum," with is full of hidden fees and hidden extra liability, maybe THAT is the problem.

Frank

Frank - expert - not. Just a guy who tries hard - but thanks.

I have not seen anything that addresses the Grantor Tax at all. 

If anyone has insight into our issues.. that would great

Here is a little background:   The house is listed as "Bank Owned" and has been on the market for over a year, but we believe that the bank did not get possession of it until about 3 months ago.   We placed our first offer beginning of December and did not receive a counter offer for 3 plus weeks. We then countered with a verbal offer(per our agent) and received a verbal acceptance January 11th.  Not knowing any better we immediately had our house inspection done, without a signed contract.  It wasn't until February 14th that we received an illegible signed contract with a close date of March 6th. The contract had also been modified from our original close date of 30 days from signing.  This gives us 3 weeks to close.  We requested a letter changing our close date to March 17th to no avail and we have since sent them a contract for them to sign with March 17th as the close date.   To  make things more complicated, our agent was in Vietnam for three weeks and we were dealing with another agent during his absence. Upon our agents return we did get a preliminary title which has the original owners name on it, not the banks. The home is listed as bank owned on the mls and our agent doesn't seem know why the title isn't clean and he isn't getting a response from the bank (Countrywide) or the original listing agent.   Meanwhile, the bank did perform a termite inspection on January 31st(even before we had a signed contract) and found level 1 damage, which they have agreed to take care of which includes tenting the house. This will also need to completed before close of escrow, but we have yet to get a date for the completion of this either.   So, as you can see.. it's a mess.

• Changed contract- we requested a legible copy, no results.  We also don't think that they can complete everything within their own close date. We are happy to close earlier than the 17th, but need the items below fixed.
• No clean title - is this something they change at point of sale? Everything I have read, is that the bank should have title.
• Termite Tenting
• Good Faith Check- our agent also told us to hold onto this check until the bank performed.

Do you have suggestions for how we should be proceeding? We have paid over $1000 in inspections( house,septic,mold etc) and if the house has been mis-represented as bank owned and they can't close the deal, we are out our $1000, plus the house.   Unfortunately, our agent is our little help. We would appreciate any suggestions you might have help our house to close 

Thanks so much

Hey Elizabeth,

What a mess.

Have you looked around to see if there are any other homes. Sure you have already paid $1,000 but what if you could get another place for a few thousand less? I know it hurts, but you would be better off.

It is against the MLS rules to list a property that is not owned by the title holder (as far as I know). Who is the settlement company. If you tell me that you agreed to use the bank's settlement company, I will throw this website at you. You need to get your own settlement company (in Virginia the buyer picks, but the seller somtimes offers bribes to use their lackey). The settlement company should be telling you who really owns the property.

Also you can contact the listing agent's broker to find out who owns the place. The broker is the one that technically owns the listing.

Also never do anything verbally. And if they made even one change to the contract, that means you have NO contract. Everything is null and void until both sides agree in writing to one document. 

Good luck

Frank 

Frank

Here is another example of last minute screwing(s) thrown into the deal, my buyer signs a regular state accepted P&S (in New Hampshire) when the addendum arrives after a buyer flies in from Seattle for an inspection we find (not previously disclosed) deal is as is, and buyer is responsible for both sides of the state transfer tax on 200K is .75/1000 or 1,500 buyer side (expected) plus another $1,500 thank you needless to say a flight across the country, a review of a surprise addendum and a trip back empty handed no one was happy in the end... these banks should be giving first mortgages with no closing costs to dump this stuff rather than turning it into a profit center.

Steve

Lots of great information here.  Haven't noticed any substantial hidden fees on the Bank Addendums.  We charge the $100 per diem as well but I have yet to see them use it.  Most of the time they just ask the buyer to put together a contract addendum.  I have seen the bank pay the termite inspection fee if the buyer asks for it that way. Also if there are needed repairs if things are asked up front then the bank will see what they can do to get the repairs done or provide a credit. The bottom line is that they want to sell the house and with our inventory in Prince William County over 6000 they will do what is realistic

RE: BANK OWNED PROPERTY.

HOW DO REPAIR CREDITS WORK? DO I NEED TO SUBMIT THE BIDS BEFORE CLOSE OF ESCROW? DO I PAY FOR REPAIRS AND THE BANK REIMBURSES ME?

PLEASE HELP AS I AM VERY CONFUSED.

Use a Buyer Agent, they can easily help you with this.

Someone made a comment on providing HOA packages to buyers and that it was the law.  Just FYI.  Its not! 

Look ar 55-512 Section F Number 3.  Clearly states that foreclosure properties are exempt. 

 They are also exempt from disclosure disclaimer.

 I am also an REO broker.  I have 200 plus properties.

Hello Jeffrey,

Correct regarding a foreclosure that is sold on the courthouse steps. But many people refer to "foreclosures" as properties that were foreclosed on and taken over by the bank. If the property is now bank owned, I believe the HOA rules apply. Is that incorrect?

Frank

Jeff - I know about the Disclaimer/Disclosure part, but are you sure on the HOA part? If so, it sure would make my life easier, but every Attorney/Title Company I have asked has told me that REO's are not exempt from HOA Disclosure laws.

Are you here in Virginia?

Frank,

We just had to walk away from an REO sale, as the "addendum" (counter-offer) gave us the requested 15 days to inspect the property, but we would have to immediately (prior to inspections being done) waive the right to act on the information revealed in the inspections. The addendum said we could not renegotiate price, or avoid the sale regardless of condition or inhabitability.

I understand the acceptance of "as-is", but I need to know what the condition is to make that decision.

The addendum also stated that the bank's commitee had the right to modify the addendum at any point, and if we don't abide by their changes, we forfeit the deposit. ($10,000)

This addendum also would have stuck us with a $1780 city transfer tax that we had requested them to pay in the original offer. They accepted the offer, then negated the offer.

Is this negotiating in good faith?

What! That is totally nuts!

Good for you for reading the contract. Are you an active rain member or did you just start surfing around with a search like "Jacked REO addendums" 

WE MADE AN OFFER ON A REO THAT HAD ONLY BEEN ON THE MARKET FOR 2 DAYS. tHE ASKING PRICE WAS LOW TO ATTRACT MORE BUYERS I BELIEVE BUT REGUARDLESS WE OFFERED A LITTLE LOW (9,000 LESS THAN ASKING) WE ALSO ARE FHA AND WANTED SOME CLOSING COSTS PAYED FOR BUT OFFERED AS IS. WE FOUND OUT THAT THERE WERE OTHER OFFERS ON THE TABLE...ONE HIGHER THAN OURS AND CONVENTIONAL OTHERS LOWER OR THE SAME. tHE LISTING AGENT EMAILED BACK SAYING BANK IS TAKING BEST AND FINAL FROM ALL OFFERS. WE CAME BACK RIGHT AWAY WITH A MUCH HIGHER NUMBER (20,000 MORE THAN ASKING) BUT STILL WANTED CLOSING AND FHA. tHE HOUSE WAS THEN LISTED AS PENDING AND NO WORD FROM LISTING AGENT ON WHAT WAS HAPPENING. WE THEN FOUND OUT THAT THEY HAD EXCEPTED AN OFFER ,NOT OURS. A FEW DAYS LATER LISTING AGENT TOLD US THEY HAD COUNTERED THIS OFFER AND THIS BUYER DID NOT RESPOND. OUR OFFER WAS NEXT AND BEST BUT THEY HAD COUNTERED OUR OFFER AS WELL WANTING MORE MONEY DOWN LESS TIME TO HAVE INSPECTIONS AND OFFERED TO PAY CLOSING. WE ACCEPTED RIGHT AWAY IN LESS THAN 2 HOURS. A DAY WENT BY AND THEN WE GOT A EMAIL TO SIGN AN ADDENDUM BECAUSE THE ORIGINAL OFFER WE MADE AND THE ONE THEY ACCEPTED WAS VERBAL. SO WE SIGN THE ADDENDUM FROM THE 2ND OFFER WE MADE. DOES THIS MEAN THEY HAVE ACCEPTED OUR OFFER? WHAT DO WE DO NEXT? OUR LISTING AGENT IS LESS THAN HELPFUL AND I AM KINDA INTERESTED IN THE PROCESS?

Hey Kristie,

The ALL CAPS is really really hard to read.

At the end you said "our listing agent" I think you meant "our buyer agent."

Anyhow, never do any offers verbally. Everything should be in writing. I know it is a hassle, but this is a huge purchase. A verbal doesn't cover who pays the $5,000 transfer tax etc. As for the addendum, you can't have an addendum without a main contract.  Just make sure you have everything in writing signed by all parties, then and only then do you have a contract.

As for closing cost, you have to NET out the offers in your head. All the bank cares about is the NET price. So when you say "$9k under asking" but then under your breathe you say "oh yeah and closing costs" that isn't how the banks (or any seller thinks). As for best and final, you might consider asking your agent if they can do a background check on the listing agent to see how much over list they have been able to get in the past.

Good luck. Make sure to look closely at the addendum and show it to a closing attorney to see if they changed any terms.

This is a great Thread!!! Lots of great info... I am an REO attorney in NC and SC, and I represent quite a few asset companies and banks. I have drafted some of the contracts which are the culprit of this thread, and I want to give you the banks view.....

If I had to break down the contents of the typical addendum I would have to break t down as follows:

THE Overarching theme is the fact that in an REO Transaction the bank is losing a lot of money.

If you have a property which had a 225,000 note on it, and it sold at FC for 200,000 the bank has lost $25,000.00 off the top

The typical Deed of Trust/Mortgage allows the Trustee/FC Attorney to collect 5% of the FC Sale price so here the bank loses $10,000.00

The Real Estate Agent/Asset Management Companies collect 6% Commission (if it sells for $185,000.00) The bank loses another $15,000.00 in equity, and then $11,000 in commissions

If the Listing Agent re-keys and trashes out... Ill estimate another $2500

Tax stamps in NC $390.00

REO Attorney Fees- $1200.00

Buyers title insurance $500-$1200

Lets say the property is owned by the bank for 6 months... they lose $5000 in utilities, and lost principal and interest.

SO.... Give or take on a $225,000.00 property the bank loses  $70,000.00....

The Addendum is designed to alleviate as much of this as possible....

A. INSURABLE TITLE -  It is true that most addenda provide for the seller to provide insurable title only. This means that title must be such that a major title underwriter of sellers choice must provide insurance without exception to anything but the normal covenants and restrictions, and easements etc. This is much different than the normal contract... and to be honest many settlement agents and closing attorneys do not understand this difference.... The reason for this because, the bank does not want to invest any more money than they have to in clearing title.

B. CONTROL OF CLOSING- Again, the bank is losing money... every day the deal does not close the bank loses money. In order to help, they pay the asset managers based on numbers closed per  month. The Asset managers and banks want to use their Closing Agent, because they understand the process and insurable vs marketable title. A bank appointed closing agent will also push harder to close before the closing deadline, because they are also graded by on time closings.. (this can be good and bad) Remember the buyer can always retain counsel to review docs, but in my jurisdictions we (Seller) can control the place of closing... and the buyer will have to pay both the sellers closing agent and their own attorney.... RESPA does not speak to choice of closing agent--- it speaks to choice of title insurance company... if the contract is worded correctly it may pass muster with RESPA.

C. TIME IS OF THE ESSENCE (Don't laugh... I know, it seems as if no one is ever in a hurry to call you back or close) I could write a book on this, but in short--- the REO and Loss Mit departments are WOEFULLY understaffed and in some cases undertrained.... and the VOLUME IS CRAZY!!!!!  Add to that inexperienced closing agents and buyers agents it causes a huge bottleneck... this is just a by product of the current economy any nobody is to blame... it will get better! As the industry continues to learn how to do the REO dance this will alleviate itself....

FROM ONE SELLERS ATTORNEY TO ALL... please be patient, be nice, and you may be suprised as to what happens!!!! The REO is a very different animal and if you do not handle it with care, it will bite you very very hard! The rules and customs of the normal closings do not apply and if you understand that going in, and control the buyers expectations you will succeed in your REO biz...

Also check out my blog: REO ---- The Tiger and the Tabby....

I just saw this in their contract : "Buyer is responsible for verifying any possible liens, judgments, or assessments that may not be of record and hereby releases Seller from any and all liability related to any such liens, judgments or assessments."

Yet they want you to use THEIR closing company? GIve me a break!

I was wondering if, I put 20% down on a bank owned home. The home has been on the market for almost two years.I am offering 28,900.00 less then the listed price (per the realtor), would the bank even consider my offer? Also is it a good idea to put a contract out on this house, althouh I would be the lowest offer,  my financing is in order?

Dear Anonymous,

Do you have a Realtor as your buyer agent? You need to be asking them. $28,900 less is a large amount if the homes is $60,000 but not a large amount if the home is $900,000 so I can't just tell you that.

Also they don't care if you put down 20% or 1% or 100%, as long as you can close on it.

We are in negotiation with the bank for an REO property. The bank sent an addedum 2 weeks ago wanting us to close on June 27. We put in a counter offer to close 30 days from acceptance. The bank e-mail our realtor and told him they want us to close on July 15. The bank now want us to sign their addedum back to them before they will type up a contract with the new closing date.

My concern is that if we sign their addedum, does that mean legally that we are agreeing to their terms since we don't have anything in writing or sign by them agreeing to close on July 15.

Our realtor told us not to worry because our couter offer will override their addedum. Is this true? I am still worry because I am afraid the bank can just say "well since you sign our addedum and we didn't sign your counter offer then you are agreeing to our terms"

My experience with REOs is that they really do want to sell the property but it is entirely different from the normal seller.  Don't expect a disclosure.  Expect them to look at the bottom line and don't expect them to be thrilled with extremely low offers when it is first listed.  Price will go down as it stays on the market.

Their addendums have to be good over the entire country not just one state so it has to be lengthy and full of legalisms.  Trying to pour through the whole thing and have your attorney look at it also will sometimes make you lose the house because of time.

Great answer Barbara - especially abou tthe Addendums. I get a lot of Agents who want to change them. You sound like the voice of experience.

I am seeing more and more Buyers who are sure they are getting a good deal on these REOs.  They don't read the addendums just sign them.  Often attorney approval is negated and there is nothing that can be done after the fact.  Buyers beware.

I am seeing more and more Buyers who are sure they are getting a good deal on these REOs.  They don't read the addendums just sign them.  Often attorney approval is negated and there is nothing that can be done after the fact.  Buyers beware.