is an abbreviation for "real estate owned," and refers to real property
owned by a bank and offered for sale. Banks have typically
acquired their REO properties through foreclosure. The components
of an REO contract are the standard Offer to Purchase and Contract and
an REO addendum specific to the selling bank.
REO contracts are challenging because REO addenda include unfavorable
terms for buyers, require buyers to meet almost impossible
contingencies, and permit selling banks to continue marketing the
property in order to receive backup offers.
You can most effectively assist your buyer clients by reading the REO
addendum carefully, explaining its terms thoroughly, and working with
them to meet contingencies ahead of schedule. Here are a few
specific tips for reaching the closing table successfully.
First, advise your buyer to line up financing (or proof of funds for a
cash purchase) as early as possible. Most REO addenda require the
buyer to provide evidence of loan pre-qualification or proof of funds
prior to the seller's acceptance. Also, be sure your buyer is
completely comfortable with his or her lender and the loan terms.
Some REO addenda state that a buyer who changes lenders, or the loan
type or terms, is in breach of the contract.
Second, be careful about seller offers to pay for the buyer's
closing. This may seem like a nice perk, but the seller's attorney
will not be providing legal advice to the buyer or looking out for the
buyer's interests. The best scenario is to negotiate for the
seller to agree to pay for the title insurance policy, but allow the
buyer to select the closing attorney at buyer's own expense.
Third, do as much as you can on property inspections before even
submitting an offer. REO addenda typically give very short
inspection periods, such as a mere five days. The sale will
undoubtedly be an "as-is" purchase, and the contract will require the
buyer to obtain all COs and other governmental approvals. Knowing
exactly what your buyer is getting as early as possible is critical.
Good luck getting to closing in your REO contracts.
not hesitate to contact me to receive more information on this topic or
to suggest topics for future editions of 'A Legal Moment'. You may not
rely on this content as legal advice for any specific situation, but
should instead contact an attorney for specific advice.