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Buying a Bank Owned REO Home? Beware of the Bank Addendum and hidden fees.

I have wanted to post this post for a few weeks now. I want community participation on this one. I need examples and things to watch out for in Bank Addendums.

So you are buying a bank owned property, and REO or a Short Sale? You need to understand the bank addendums that accompany them, or you might miss a $3,000 hidden fee.

But first, a quick background. Agents that are members of NVAR, and are REALTORS, use a 15 page contract that was painstakingly created by lawyers and a contracts committee. They try to design it as evenly as possible and several "fill in the blanks." Local Realtors are given hours of training on these contracts. While a client might want to also have the contract reviewed by a lawyer, there is some comfort knowing that it everyone uses the same contract and was written by lawyers with a neutral bias.

But when you buy a bank owned property, you start with a standard contract, but then the bank sends the oftentimes non-negotiable "bank addendum."

They might appear innocent, but they are not. They are written 100% FOR the banks and since every bank has a separate bank addendum, there is currently no training for REALTORS so that they can fully understand them and the tricks that they sneak into them

Here are just a FEW of the things you should know about bank addendums:

Addendum means "Everything in the main contract is nullified if this addendum covers it. So if your main contract says you get a walk through, but the addendum says "As-is," the addendum wins.
Some bank addendums are written nationwide and ignore local laws. Local laws DO supersede these contracts, so sometimes there are points in them that are not enforceable.
Watch out for hidden fees. One of the agents that I work with had their main contract agreed to, but the addendum needed to be sign. The addendum shifted a $3,000 tax to the buyer. Hello! That is real money, don't just sign it.
Most addendums are more "AS-IS" than the regular contract. The bank would rather take less and be done with nickel and diming. This is fine, as long as you realize and are ok with this risk
Most addendums allow the bank to cancel the contract up to the sale date. Yep, they can walk, sometimes for a $1,000 fee or sometimes with no penalty. If they get a higher offer, or whatever, they can break the contract. Again, this might never happen, but you need to know what COULD happen.
Bonuses to use their title company. In Virginia the buyer is legally allowed to pick the closing company. But oftentimes the bank wants their company to do the closing (in part because they get kickbacks) so they offer a $1,000 incentive. On something like a bank sale, with people losing their homes, I would want MY title company to tell me everything is all clear.
Termite provisions are stuck. Normally the seller pays if there is termite damage. The addendum shifts the risk back to the buyer.

Does anybody else know of some tricks that are hidden into these addendums? Again, there are dozens of variations, so make sure you review it carefully and have a lawyer review it.

Written by Frank Borges LL0SA- Broker FranklyRealty.com

(please report typos)

Posted by FRANK LL0SA- Northern Virginia Broker .:. FranklyRealty.com on 02/07/2008 06:16 PM

Comments (53)

bank owned properties, foreclosures, buyers agent

This post has been included in Virginia Information Arlington County, VA Information
Post is included in group: Independent Brokerages
Post is included in group: Real Estate Law
Post is included in group: REO
Post is included in group: Virginia Foreclosures Short Sales and REO (and Pre-Foreclosures)

53 Comments on Buying a Bank Owned REO Home? Beware of the Bank Addendum and hidden fees.

FEB

2008

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.

FEB

2008

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.

That is how I see it. Feel free to call or email if you have any other questions.

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.

FEB

2008

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

FEB

2008

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

FEB

2008

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.

MAR

2008

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

MAR

2008

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?

MAR

2008

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"

MAY

2008

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....

JUN

2008

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!

JUN

2008

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.

JUN

2008

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.

JUN

2008

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.

JUN

2008

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.

AUG

2008

Hi,

I submitted an offer the same day that the bank accepted a cash offer deal of $175k from someone else,

I submitted an offer for $190k (listing was for $178k). The listing agent (very rude and unprofessional) stated that it was too late (she had told me to submit it a day b4) and that the back was not going to take more offers.....can she do that or can I resubmit stating my case? What do u guys think?

Thank you very much, very informative and professional people.

SEP

2008

I bought an REO, should be closing in about one week.--I took pictures of the home one day after I won the big in an auction.

Again, I bought it AS-IS.

When I saw it (and took pictures of it) the home had the condencer unit (AC exterior unit).

I went to see it today and the condencer unit is taken appart as if someone is stealing it piece by piece but it's almost ALL gone.

Who pays for this damage or missing item?

Interesting. Depends what your ASIS said. Was it AS-IS at the time of contract or AS-IS at home inspection or what. Also your lender might not even loan on a property without that, so that might be an excuse.

Also AS IS means something different in each state. You still might have your "walk through" clause which states that major appliances need to be in working order.

And then it is a question of whether you just want money or you want out. It would be easier to get OUT, but harder to get money. They just call your bluff and say "no thanks."

Ultimately talk to an attorney, or tell the listing agent and see what they recommend (before yelling and screaming about it).

Frank

SEP

2008

My agent informed me that the bank addendum requied me to pay 100% of the Maryland transfer and recordation taxes but as I went on line I saw that First Time Buyers don't pay those taxes but the seller does. If hard working 26 year old young people can't trust the older generation to look out for them then who can be trusted. You can always make money but don't oppress the people.

Hey Bias,

Perhaps that is the default. But what they are saying is "regardless of the default, we want you to pay XYZ" and you can always reject it, but the thought is you are buying it for $50k less, so why not try and sneak in another 1-2k?

Frank

I love the stack of addendums you have to sign for a FNMA property when purchasing. It has to be 30 pages...

FEB

Thanks for this post. One addendum (counter) I received is not signed by the bank - they wanted my clients to sign first and then will take about 5-10 business days for the bank to sign and get back to us. In the meantime, they've also stipulated a date for COE, but we can't get started on processing the loan, etc, until we received the signed copy. In the meantime, they have the right to take any other offers until they sign this counter that they actually sent to us. It's a little unnerving for my clients, but I'm hoping for the best and just making sure that they stay informed along the way. It would be nice if there was one standard procedure for the sale of REO properties, but I guess that at least gives one more reason why buyers really need to have a real estate agent on their side.

MAR

I have joined the crew. I am now working a bank counter offer. The learning curve is high and unpredictable but the wealth of information above is priceless.

MAR

We offered $85,000 on an REO listed at $99,300. We put $5000 in earnest moeny, included a letter stating all of the things that needed repairs. We were putting down %35 and had our pre qual letter. We were told to give it our best shot since another offer was in. The bank counter offered us at $96,000. We felt like the house had too much work it needed to be livable so we stayed at $85,000. Needelss to say we did not get it. So, I have decided I want to try again. What will the bank think of that ? My husband keeps his emotions out of it and says it isn't worth anymore. We've looked a long time and now my son is ready for kindergarten so I am feeling more desperate (school location) and I want this home. Someone suggested we offer lower than $85,000 so that we could counter a counter offer. I think I could get my husband to go up to $90,000 if we started at $85,000. We felt like this was similair to working with a car salesman. Our agent told us that you never know, they could come back later and ask if we were still interested. I don't believe that but she felt the home was worth somewhere in the high $70,000's. The location is great but like I said, it needs a lot of work. The realtor had told the bank they should accept. The area has had a lot of lay offs and they will be paying for mowing etc. I'm feeling eager, what can I do other than giving full price which I know my husband will not do. Most people do thing they can get an REO cheaply. Chances in this area are slim that they would get asking price.

Been searching in IL

Hello Il-

Here is my take on your situation; please keep in mind that I am in Virginia and that I know NOTHING about your market.

Good job on the $5,000 earnest money - the banks like a big deposit.

Most of the time you are dealing with a servicer - meaning you are not really dealing with the Seller, but a company that is servicing the loan. They list the house, they get an offer. They get a second offer, and then they ask for the "highest & best" offer from all parties. Often, they will then pick one of the offers, but they may take it to the actual investor and get shot down and have to counter again.

On the sending of a letter listing the things that are wrong with the house-I find that this rarely works. Most of the time agents have to put the offer into the Servicers computer system; there is no way to include a letter. Anyway - the seller - they don't care; it is all a numbers game.

On trying again-if the property is still active and you are interested in buying it, go for it. The Bank does not care how many times you bid.

A hint - make sure your offer has a 30 day - or so - closing date - and keep it about 4-5 days from month end. The Asset MGR's like to have a loan closed and funded by the end of the month, and if you close on the last day of the month, that is tough. Again, I am in Virginia and I am not familiar with closing timelines in Il.

How much is a home worth? It is worth what is will sell and appraise for. If you really want the house, I always suggest that you bid the amount that will make you sleep at night. Meaning - after you do all of your due diligence - market evaluation - whatever - bid the amount that when you go to sleep at night you can think "if I don't get it - that is ok - I was not willing to go any higher."

Again - I don't know your market, but here in Virginia I have what seem like hundreds of stories of people who did not get a house they loved. They bid low because someone told them to, and then someone else bought the house they loved. They call me and say "I would have bid more if I had known."

Hope this helps, and I wish you much success in finding a home.

Kevin McGrath - Broker Owner

RE/MAX BRAVO

Fredericksburg VA 22553

www.fredva.com

Kevin,

I appreciate your response. This looked like a great place to get advice and I was correct in my assumption. Supposedly the home has been appraised at a higher price, $108,000. We don't think it is worth that, our realtor mentioned high $70,000's. I understand the bank doesn't care what we "think" it is worth and they need to get their money back. Our pre-qual letter says that the financing is dependant upon, "A satisfactory appraisal of the property." What if they find it's worth less? After they appraise it do they contact us? My husband went to the bank alone as this all happened rather quickly. He doesn't know either. I guess if they appraise for about the same then we should feel better about the price. It is worth more to me, "sleeping at night". My husband however is much better at keeping his emotions out of it. He feels that we can keep waiting. I am tired of looking and I love this house. I plan to try again.

Taxes are another topic. Often with foreclosures people think that taxes will drop if you get the home cheaper.

Foreclose and REO properties are ample but buying them is way different than other realty. People need help with all of this. You feel very cautious and trust no one.

Again, thanks for your input and I definitely need a well wish!

Been searching in IL

APR

Would you answer a question for me please?
I am involved in purchasing an REO property..The accepted offer was 448500. We saw how terrible the plumbing
among other things was and got panicked, so then backed out of the contract.. It was back on the market very quickly for 5K less 443K!
We realize after a lot of thought, that we actually don't want to lose it. So we told our broker this, he said the only way that the seller will deal with us again is if we pay the original agreed upon price, write it all up anew, and close in 2 weeks.
Isn't it illegal to force someone to pay more than the advertised price?
What are your thoughts?

Also, the agent said if we low ball again, the seller could opt 'not to deal with us' anymore and not let us bid again. is this true?

Thanks so much in advance,

Carmela

APR

Sounds like a load of crap to me.

Get a new agent ASAP.

Frank

(ps there is no law about paying over list, that happens many times in bidding wars)

JUN

Hi,

We are in New York and have purchased a REO from American Home Mortgage Inc (contract was signed by them $268,000). The house had a mortgage with Lehman Brothers and is currently listed with the tax records as been owned by Lehman Brother. We have been trying to close for 7 weeks and have finally found out that the problem is that deed was signed by someone at Lehman Brothers that didn't have authorization. We have sold our house and need to move in to two weeks! Do you have any idea what options are available to clear this up? The bank attorney is clueless/doesn't seem to care. He was waiting for a POA but know is talking about issuing a new deed. Any help/ information that you have wonderful. HELP PLEASE Thanks Jeanne Marie

Hi - I hate to tell you this - but this is a very common occurance. For instance - this happens with almost 50% of my closings. I am sorry you are having so much trouble.

Your Realtor, and I assume you have one working on your behalf, is the one that really needs to drive this bus. The only thing you can really do here is be the squeeky wheel - that is the one that will get the oil.

Heavy pressure on all parties is the only thing that will move your case to the top of the pile, and it is a pretty big pile.

Kevin McGrath
RE/MAX BRAVO
Licensed in the Sate of Virginia

www.fredva.com

Thanks so much for getting back to me. We hae already lost our rate lock and rates are up 1/2 point. We are calling all the time (I even found the VP of REO's number) but we still haven't gotten a closing date! This American Home Mortgage Inc does everything electronically so our agent can't even call anyone but the bank attorney who doesn't get back to us. How long has it taken to close with this kind of problem?

I wish I could answer that, but based on the information given, and without knowing anything about your particular situation, I can't give that kind of answer, other to say that if you really want the house, you have to hang in there.

Your agent is at a disadvantage too, unless he is the listing agent as well; REO agents very rarely give up contact info.

JUN

After discussing this with our attorney, seemingly the bank's addendum to our standard is impossible to fulfill. Their addendum requested a mortgage committment within 10 days of the date of the contract, not the execution of the contract. The bank has yet to sign the contract which is required for any mortgage committment and it has been 10 days since the contract was written!

We also found some "hidden" items in our contract...

1. "Wiring of the remainder of the sale price will occur at least 2 days prior to closing. Seller will not guarantee date of closing even after receiving the remainder of this money." So, we have to finish paying them before we get the house and they could delay the closing indefinitely once we have paid them that money. AND, if we try to void the agreement at that point, we would lose everything!

2. There are 2 different amounts for the per diem rate.

3. Most of their deadlines as outlined in their addendum do not have the blanks filled in with the dates!

4. If our lender requires any repairs to be made prior to mortgage approval, the selling bank will not pay for or credit us for them. Any repairs required prior to mortgage approval are the sole responsibility of the Buyer, and the Buyer is not permitted in the home to make such corrections.

5. We are being held to the closing date or risk the per diem. However, if the bank is not ready for the closing date (a date they set forth) we have no recourse. If our mortgage committment expires before the closing due to seller hold-ups, we are required to obtain another mortgage committment (even if the rates have doubled and we aren't comfortable with this payment) or forfeit all money laid out so far. So one way or another we would basically be stuck with this home even if we would not be able to afford it!

After reading this contract, I can easily see why banks are in the trouble they are in. I understand they want to get the most they can for the home, but we are eager buyers who offered full asking price, as is, are more than willing to pay for and complete and repairs needed by our mortgage lender, and they are scaring us off! How is this not better regulated??

JUN

I see a number of questionable addendums coming into play in our area. One I received today states that the bank will not honor a finance contingency unless the buyer is receiving the loan through the seller's organization. Further, they require a higher than normal EMD and state that it is not-refundable if the loan is financed through another lender. I am looking into the legality of the situation now, though the moral implications are quite clear.

Michael Dailey
Keller Williams Realty
Dexter, Michigan

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