REO Weird Addenda?

Question

SO i have an REO property under contract and apparently the seller's agent sent us some forms that we're required to fill out as a part of "standard bank procedure." My Realtor said "sorry I don't know what they are" and got me to sign them anyway.  I told him not to submit them until I get the reviewed by my broker and my lawyer.  He said there's no need to because "banks use these forms all the time to protect their ass" - I'm still having a lawyer look at it though.

The section I'm most concerned about states

2. This contract is subject to acquisition of the Property by Seller

3. This contract is subject to approval and acceptance by Seller's mortgage insurance company and beneficiary, if any.

4. Final acceptance of the contract of sale is subject to Seller's committee approval.

Does this sound like short sale contingencies?  The property is vacant and is listed as REO, but these subject to's got me worried.

Any suggestions?

Jamie Keeton · Answer

Sounds like the answers were obtained and some great ones at that!!! Nice answers.

I take issue with the fact that the listing agent is asking someone to sign something that they cannot explain. That's a sure tell sign that the transaction could be a bumpy one. Any person signing a contract should never sign unless they fully understand and agree to it. Period. Exclamation Point! So if you are not sure, please, please please have your questions answered before signing. It will save you a lot of headache/heartache down the road.

#2. As previously stated... these banks, FC attorneys and counties are so far behind on getting the titles into their name. I have done Ohio, Kentucky, Indiana and Florida and this is across the board. This clause just implies that their title deed may have not yet been recorded to reflect them as owner. The title company cannot close until this completed.

3 & 4... there are going to be several hands in the pot when dealing with REO. You have the bank seller, the Servicing company, the asset manager... Until it goes thru the chain of all those parties and their internal processes. Some asset managers sign off on anything and then the actual seller gets it and may take issue.

Thanks for checking on this before just signing. It's good you are looking out for you and your clients in this manner of detail. Pay close attention to the REO contract that pertains to concessions... make sure it is what you were seeking in your initial contract.

Account Closed · Answer

Run it by your lawyer, but I would say:

2- probably a standard contract. It might or might not apply to you and, you have to admit, they can't sell it to you if they don't own it. Things can interfer with their foreclosure proceedure, like maybe the person losing it somehow comes up with the money and redeems the contract.

3- that's definately to your benefit. You do not want to buy it if a title insurance company refuses to insure title. I suggest that you walk away from any property that has a clouded title.

4. Banks always, and I mean always, review any sale or mortgage at the last second before closing. There is no way around that. I've never heard of them backing out at that point without good cause, but they do want to be able to legally back out if they discover a reason to. It's a CYA clause.

I am not a lawyer and state law can easily affect the way a judge will interpret a contract. I suggest that you take the whole thing to your own lawyer and get the green light from him. I wouldn't expect to pay much over $100 just to have a lawyer look at a contract and explain it to me.

Steve Babiak · Answer

I see in my state that it can take months for the bank to get the actual sheriff's deed, and to clear title issues; before they can go to closing, the normal real estate purchase process (using a realtor) will require those to happen.

So the deed might not be recorded to the bank yet, or there are other title issues to clear up.  I posted elsewhere where one REO foreclosed in March 2008, finally got under contract in Mar 2009, and it still has title issues; the bank has filed "quiet title" lawsuit finally.

Item 3 is not "title insurance" as another post here has stated; it is mortgage insurance, sometimes called PMI by most people.  The mortgage insurer might be upset that they have to pay out a claim because the REO owner agreed to too low of a price.  This item is one where again the bank may be unable to perform at closing, and so it is covering itself with this wording.

The other two posts are correct regarding the approval by committee; this is one of those clauses that makes sense to the bank.  They don't want some asset manager to agree to a lowball price because they have a connection to the buyer in some way; this committee approval hampers this kind of shadiness.

Hope that clears things up for you.

Jon Holdman · Answer

The first one says you're going to actually buy it and not flip (assign, double close, transactional funding, etc.) it to someone else.  Pretty standard.

The second says there's a PMI company involved and they have to approve the transaction because they're going to end up having to make a payment.  They could nix the deal.

The third is saying there's some committee at the selling bank that could still nix the deal.

Welcome to the fun world of REOs and their stacks of addenda.

Jon Holdman · Answer

You're right, James, it does read like that.  That makes no sense, though.  It takes banks months after the sale before they get an REO listed.  If some bank has managed to list one before the sale then the planet is about to split in two.

Ivan, Have you received a title report on this property?  That should make it clear who owns it and who holds any liens.

Jason Esparza · Answer

Always follow your gut, would probably be the first bit of advice I would give.  Your realtor telling you not to worry would send chills, unless you are tight, then take it, but it's not his money.  It's not his property.  Even if it ends up being nothing, just the setting you at ease would be worth it, and you get to learn what they are for future reference.  Best of Luck!

Ivan Jouikov · Answer

k done )

Steve Babiak · Answer

Ivan,

The forum has a "vote" feature alongside each post, to allow for acknowledging the posts that the reader has liked enough to give a vote.  Press the little '+' button for any post (other than your own) that you wish to vote for.

Ivan Jouikov · Answer

Voting? I'm not a citizen and I told my wife (who is a citizen) that I will dictate her who to vote for but she voted anyway without asking me! Go figure...

Steve Babiak · Answer

Ivan,

Don't forget to show your "appreciation" by voting!

REO Weird Addenda?

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