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

By
Real Estate Broker/Owner with Northern Virginia Homes - FRANKLY REAL ESTATE Inc

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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
  5. 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.
  6. 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.
  7. 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)

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Virginia Foreclosures Short Sales and REO (and Pre-Foreclosures)
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Rainmaker
129,644
Kevin McGrath
Long & Foster Real Estate Companies- Fredericksburg/Spotsylvania - Fredericksburg, VA
Long & Foster Real Estate Companies

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

 

 

Mar 14, 2009 02:54 AM #43
Anonymous
Been Searching In IL

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

 

Mar 14, 2009 04:57 AM #44
Anonymous
Anonymous

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 25, 2009 12:30 PM #45
Rainmaker
138,114
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

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)

Apr 25, 2009 05:43 PM #46
Anonymous
Jeanne Marie

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

Jun 08, 2009 02:35 AM #47
Rainmaker
129,644
Kevin McGrath
Long & Foster Real Estate Companies- Fredericksburg/Spotsylvania - Fredericksburg, VA
Long & Foster Real Estate Companies

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

 

Jun 08, 2009 02:44 AM #48
Anonymous
Jeanne Marie

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? 

Jun 08, 2009 02:53 AM #49
Rainmaker
129,644
Kevin McGrath
Long & Foster Real Estate Companies- Fredericksburg/Spotsylvania - Fredericksburg, VA
Long & Foster Real Estate Companies

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 08, 2009 03:01 AM #50
Anonymous
Anon Buyer- advice please!

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 10, 2009 12:38 PM #51
Rainer
4,704
Michael Dailey
Keller Williams Realty - Chelsea, MI

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

Jun 22, 2009 07:08 AM #52
Anonymous
Washington Girl

My husband and I are under contract for a bank owned property in a DC suburb.  The inspection is VERY SOON, although we have already identified several issues with the property.  We only have one day to walk away based on what the inspection finds. 

Some Questions: 

(1) Who is on the hook for any unpaid city/county/state taxes?  Us as the new buyers or the bank as the current owner?  Is there a way to check on these?  I assume that tax liens would need to be handled as part of clear title, but I want to make sure.  What about construction liens?  We have done some research on the previous owner who was . . . less than an honest person in ALL dealings. 

(2) Is there an easy way to confirm that the property, which was recently built, conforms to all local zoning ordinances, etc.?  I notice this is part of our Addendum and has been frequently discussed here. 

(3)  We already know that there are some repair issues with the house including dry wall issues.  Our offer price was VERY generous as there were six other offers.  (About 10 percent over list price.)  How can we best handle approaching the bank owner about getting money back for these issues?

We aren't looking at this as a good deal or a good investment.  We absolutely adore the house and the location.  Given that, is this really stupid?  Is buying a bank owned stupid?

Jan 20, 2010 02:50 PM #54
Anonymous
Linda
Bank accepted a cash offer on a REO home. Closing date was established. When the survey was done, it was discovered that there was a two inch easement issue with a neighbor. This property is in a historic area and all easements are grandfathered. But buyer wanted to negotiate easement with neighbor or negotiate lower price for the house with the bank. Bank gave one extension for closing. New close date came and went and buyer did not close. What happens now? Is buyer in default?
Jun 21, 2010 10:44 AM #55
Rainmaker
138,114
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

You need to ask a lawyer. 

It depends on the contract, but usually the buyer is agreeing to buy a home free of easements. So once that easement is found, he no longer has to buy the property. But the bank has no obligation to sell for less.

Jun 21, 2010 05:52 PM #56
Anonymous
Elizabeth

I submitted a cash contract to purchase an REO property with Deutsche (Saxon) in Tampa, FL. Got only a verbal acceptance from their listing realtor. My only contact, has been through their re agent. I am wondering how much authority their re agent really has on these deals? Should we take their word as "gospel" and believe that we really have a binding and accepted contract? I raise this issue because, even though the seller/bank has not signed our offer to purchase, we were send about 30 pages of addendums to sign which were all "blank" including the sales price!  This made me uncomfortable so I simply filled them using the same information in my original offer.  Their re agent sends me back and email saying that I cannot write in or change anything but to just sign and remit these blank addendums?  What if the bank fills in a higher sales price on that addendum then I could lose my $5K deposit is what I fear. Has anyone else been asked to do such a thing? Or did their re agent drop the ball and forget to complete these addendums on their behalf? Just looking for a sounding board out there as my re agent does not have much exp with these REO properties I am afraid. Thanks and any direction would be greatly appreciated!

Jun 25, 2010 11:19 PM #57
Anonymous
Frank

Banks are very tough to deal with. And it would be hard for me to allow a client to send a blank contract. But in the end, there isnt really any risk. You have a paper trail of the agreed to price, so im not scared taht they will just put in things you didnt agree to. (make sure to follow EACh phone call with a "as per our conversation we agreed to xyz. That gets you a quasi written agreement if he doesnt correct any of your emails.)

You should have a buyer agent walking you through this.

Frank

Jun 26, 2010 03:09 AM #58
Anonymous
dave murphy

buying a bank own home it has a bolier the bank had it winterize when they turn the water on from the street the water   pipe that come in the house is leaking that is hook up to the water meter who pay to get it fix  we are going   FHA loan

Dec 10, 2011 12:08 PM #59
Anonymous
Sarah Ray

Can banks add addendums as seen in the following real estate purchase contract (starting from page 2 and changes in bold)?:

http://reodenver.com/wp-content/uploads/_property_addendum/5550-w-80th-pl-25.pdf

Some concerns:

Sections 17 - Waivers results in buyer waiving all rights to sue the banks on any issues.

Sections 18 - Bank has full control to leave the contract anytime

Buyer is pay all costs for survey, inspection, title, and hoa costs left by previous owners.

Apr 16, 2012 07:11 PM #60
Rainmaker
138,114
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA
Sarah, you would have to ask a lawyer, but what I can say is your question is off. Sure, they can add whatever they want. But the question is "is it enforceable?" Many bank addendums are used us-wide. If they violate local laws it makes that portion (sometimes the entire thing) unenforceable. Only a lawyer could advise you on that. But your suspicions might be right. That a contract that 100% let's them change their mind but 100% blocks you from changing your mind, doesn't seem reasonable.
Apr 17, 2012 03:54 AM #61
Anonymous
Sarah Ray

Thanks for the comment it brings me to a different perspective. I will be using a lawyer.

Apr 18, 2012 07:02 PM #62
Rainmaker
1,471,740
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

With REOs, an experienced agent who knows the local market and what they are doing , can help you determine if the price is a good value and all necessary paperwork. But of course, we can not give any legal advice. 

Mar 30, 2016 04:33 PM #63
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Rainmaker
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FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com

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