REO (which stands for Real Estate Owned. That doesn't make sense either so most folks know them as Bank Owned) properties offer some great opportunities for buyers in today's market.
Most buyers are aware that these properties are generally sold "as is", and buyers must accept the fact that they are purchasing a home without the benefit of knowing the home's history of repairs, or well...anything else about it. Can you say "Buyer Beware!"? That's why you have a professional inspection, right?
But did you know that the Seller (which for an REO property is the lending institution that now owns the home.) will almost always require the buyer to sign a special Addendum to the Purchase Contract? These Addendums vary with each lender however, they all change the provisions that you originally agreed to when you signed your offer on the standard in the Arizona Purchase Agreement.
It's important that you read through any Addendums from the Seller carefully prior to signing them. Of course, this is true whether it's an REO property or not. Make sure you understand what you are signing (your Realtor will be able to help you with any questions you may have)! The REO Addendums are almost always weighted heavily to benefit the Seller.
Here are a few examples of some of the changes these REO Addendums may contain:
- Changes in Close of Escrow Date
- Alteration of the inspection period, response time frames & cancellation provisions
- Alteration of Seller warranties
- Alteration of the financing provisions & removal of Unfulfilled Loan Contingency
- Monetary penalties for buyer's failure to close on specified COE date (Note: This does not affect seller's failure to close on time!) and request for extension of COE date.
- Limitations of seller's liability
- Alters/removes mediation, arbitration and specific performance provisions
- May add automatic termination of contract upon breach (by the way...if you agree to this and your funding is late due to no fault of your own, it doesn't matter. This automatic termination means the Seller can cancel the contract and keep your earnest money).
- Removes Cure Period (has nothing to due with illness...ask your Realtor!)
- May add specific monetary remedies upon breach/cancellation
- May add specific provisions for Seller unilateral cancellation
- Required time frames for Seller review and approval of HUD-1 Settlement statement prior to close of escrow
- Seller to convey title by Special Warranty Deed
- May alter type of title insurance policy to be issued to buyer
If you don't understand these, fear not....if you're represented by a qualified Realtor that is. Your Realtor is there to help you understand how each item may affect you and what you may be giving up when you sign on the dotted line.