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)