The Draconian REO ADDENDUM

REO's are the hot niche in most markets. Often a bank-owned home can represent a genuine value. Since the bank is making a business decision based on loss mitigation, the emtional elements typically associated with a conventional sale by a home owner are absent. Having said that Buyer's Agents should be aware of and counsel their clients about the potentially draconian REO Addendum. This document which can be 2 - 12 pages in length usually is presented after the buyer's offer has been submitted is effectively a counter offer because it modifies, amends and supersedes the applicable provisions in the buyer's offer.

There are provisions in the addendum are risky for the buyer, such as, changing the contingency removal process from active to passive or imposing severe monetary penalties for failure to close in a timely manner. Other provisons may impose difficult or impossible contingency removal time frames or changing the close of escrow date.

Some, not all, addendums include what the lawyers refer to as a CC 1542 waiver in which the buyer waives any and all future claims and demands against the bank for both known and unknown defects and liability. This insulates the bank from virtually every form of liability to the buyer. Addendums typically include a back out provision that allows the bank to rescind the contract prior to close of escrow.

Best advice for Buyer's Agents, ask the listing agant for a copy of the addendum before writing the offer and review it. Because agents cannot render legal opinions, the buyer's agent may recommend that an attorney review and interpret some or all of the provisions of the addendum.

Here is where a buyer's agent earns his or her fee, guidance and professional advice are the cornerstones of the adage "Protect Thy Client."