Coweta Fayette Real Estate & Newnan Homes for sale blog by Richard Weisser of Better Homes and Gardens Real Estate Metro Brokers

Good blog.  It's always extremely important to understand the bank addendums.  They set the rules for the transaction.  

Those addenda need to be read to the buyer word for word just as was the original offer/contract.  They are not routine and may completely change the nature of the contingencies in the original contract, particularly with respect to home inspections, termite inspections, etc.

Good Morning Richard,

Thanks for the post. Buyers looking for a "Bargain" by purchasing an REO have to understand that the addenda drives the transaction.  Have a great day.

Richard,

Many an agent, and buyer, were bitten by the language that they didn't read carefully, or understand, in the "bank addenda." 

Rich

Richard, it seems like to me that the addenda usually are pretty simple, if you boil all those pages down to the basic level...

"You're buying this house AS IS and if it falls down or has any other problem after closing you can't SUE us.  Have a good day!"

Oh, and it also almost always controls where the buyer has to close.

Richard - as with any contract, you have to read not just the fine print, but all of the print. And sometimes the verbage of the addenda is a bit tricky to understand.

FannieMae is one of the worst. The addenda is nine pages, and like you said, essentially overrides most of the buyer protections provided in the original offer. One of the biggest problems is that the personal property / appliances do not convey unless they just happen to still be in the house at closing. Some folks just ain't willing to take that risk.

Great synopsis Richard of the potential pitfalls a buyer may face with a REO purchase.  While the property may be a good deal it is in the buyer's interest to be extra cautious. ~ Doug

In my area, Richard, we use attorneys for closings. Normally each party has one. Even if the buyers won't dissect the addenda, their lawyers sure do!  And I've never had an REO deal go belly up due to the REO addenda.

Richard,

Bob Haywood's response says it all.

I've sold quite a number of REO's to buyer clients. Prior to showing these properties I explain that if an offer is written, the bank will send us back their addenda, which will essentially be their new contract, weighted to the seller.  I also add that these bargain properties, are bargain priced for a reason and the sellers are removing any current and/or future liability once these properties are sold. I advise buyers in writing to review the offer AND addenda and  let them know that these addenda evolve with each sale meaning the sellers are updating the addenda to prevent a problem that occurred with their last deal. 

Buyers are always looking for the best deal and interestingly these addenda don't seem to deter them.

Has anyone sold an REO that had appliances when they put in offer and they were gone at the walkthrough?  I haven't had it happen yet.....but always aware it's a possibility.

Richard: I am glad that you bring this up. About 18 months ago, our area was all about REOs, and this is something that all buyers and prospective REO buyers should know.

I agree with Lenn, you have to read them to the buyer WORD FOR WORD...and then call the LO and read them to HIM TOO!

great blog, the buyer and their agent should understand it before they agree to it by signing

Richard like everything in an offer, the buyers should fully understand what they are signing including the addenda.

Good morning Richard,

Excellent advice!! The addenda is really the contract and the buyer needs to read word for word until they understand. You are right; the trade off's can pay off in a big way!

Yup- I explain to my clients these addendum OVERRIDE most of your rights.

Richard:

Here in the San Diego area, we find that many of the add-on's by any of the banks are very time sensitive.

I tell all of my agents to read and review the addendum before accepting!  One of the provisions I have been seeing is the one that states the bank can cancel at any time for any reason...

There are some REO agents around here that refuse to give you a copy of the addenda until AFTER you submit an offer.  That riles me as the addenda (as you point out) is more important than the contract in a REO sale!  I'd rather show it to my buyer before even writing the contract to see if they are comfortable with the terms.

Great post. The banks almost always counter with addenda, so we are not under contract until they are all signed.  The banks will also sell to a higher bidder any time prior to the signing of the addenda.   Many REO investors understand that the banks always counter with the addenda and this is why they may offer on multiple REOs at one time.  They know they are going to get a counter.  Great post.  It is important to explain this to REO buyers because if they are not educated it can be a deal breaker.

Best,

Clayton

So very, very true.  So many buyers believe that buying a foreclosure is a great deal when in fact, may end up costing them more money and time in the long run.

Buyers should be placed in solitary confinement for one hour alone with those documents, and subjected to interrogation about it following confinement (or just given a pop quiz).  The quiz might go like this ~

Do you understand that the addendum supercedes your purchase agreement in every way by signing this??

Do you understand that your purchase agreement is then nigh camping TP? 

Will you still acknowledge this when after you close, and you finally decide to inspect the water system, the furnace, the well, the septic and the attic space? 

Thank you for your recorded responses.  I'll be keeping this on file, just in case you run into something.

Love the language in those addenda.  The bank warranties nothing about the home.  It could have mold, asbestos, leaks, you name it.  They aren't saying.  If you don't close on tiem, you are subject to a per diem fine of (usually) $100/day and the bank will pay for title insurance if you use their title co.  Blah, blah, blah.  Still, very good deals to be had despite the scary language.

What is most troubling about contracts and addenda is that it really isn't wonderfully plain and clear.  I've found myself reading over them many times and thinking "WHAT?"   There are still wonderful deals to be had!

As Richard #21 points out, you frequently don't get the addenda until after the offer, and sometimes not until the offer is verbally accepted. Then you have about 15 minutes to get them signed and back to the asset manager on a silver platter. I have enough examples now that I can show a half dozen of them to a prospective REO buyer to get him used to the idea that he is not in control. Very hard for the buyer who has heard over and over that this is a great time to buy and he can call his own shots.

Even worse are the attorneys (usually non-real estate) who think they can rewrite language in the addenda after contemplating them for a few days. (NOT!) I have a "buying a foreclosure" handout that I should beef up with more detail on this part of the deal. Thanks for the inspiration and congrats on the Feature. I'm going to reblog.

I have seen some addenda that are 16 pages long.  Do yourself and your client a favor and recommend that they consult a qualified attorney to answer any questions they may have.  I'm sure your Broker would not be happy to find out you were giving a client advice about the meaning of the language and terms in a bank REO addendum.

Kudos to the listing agents who post the addendum as an attachment in the MLS listing in advance.

I always attach the bank's addendum to my listing for the agent to read BEFORE writing an offer. They call me and say they have printed out the addendum, now what should they do? READ IT!

Richard they almost always trump everything in the original contract.   The REO and foreclosures agents alway like to say, "they accepted the buyer's offer" and when we received the addenda, we find that they have only really accept the price.  Terms have been completely obliterated.

The addendum usually surprises buyers when they see it even though it is a normal part of the REO process and is often written in language that one real estate attorney I know of questions. But what to do? If you want the place, read it carefully and sign if you still want to purchase.

Hi Richard -- Very true.  I always recommend buyers seek legal counsel as I cannot advise on these documents which are obviously legal in nature.  Relocation addenda can also be a nightmare.  I just had one with around 75 pages.

Read the carefully -- there is often something obscure in there and hidden unless word for word is read.

I just got one that is <gulp> 29 pages. Ridiculous! I recommended the buyer have his attorney look it over.

We have the ability to upload docs on the RMLS listing.  I only wish more agents would figure out how to do that, and UPLOAD these documents so agents have them at the onset.  Saves a lot of time, explanation, and surprises.  GREAT for bringing this up.  And I'm so impressed that we SO SMART here on Active Rain.  Do you know how many agents I talk with who will say "Addendums"  -- HA HA HA

You are right and each REO company seems to have different addendums.

Those bank addenda are frightening because each one is different and the language is so complicated.

REO agents do not have a copy of the addendum before the offer is submitted- depends. But if they have worked with the same seller before they may at least have a copy from a previous reo that could give you some idea.  There are certain terms in some of these addendums that do not necessarily come into play. For example, the seller may cancel at any time for any reason. I've never seen that happen. If buyers want to submit offers on foreclosure properties, they will have to sign the addendum.

In regards to appliances being gone by the time escrow closes, I would think that someone took them. I saw a washer/dryer disappear a few days after foreclosure and I'm pretty sure that the former owner got in and decided to take them finally. Who knows.

P.S. According to merriam-webster dictionary, plural of addendum can be addenda or addendums.

If it's a Fannie Mae property we as listing agents are required to put Fannies verbiage into the sales contract, buyer initials, that the addendums will take precedence over the state sales contract.

Richard, good post. I definately would rather deal with an REO than a short sale. You just have to educate the buyer on what an "as is" contract is.

Richard - the buyers are at the bank's mercy, if they want to proceed. Addendums 20 page and more are not for the faint at heart - caveat emptier.

Great post!

Richard, you are so spot right on! Thanks for bringing this up. I can't tell you how many times I've seen buyers show up (and their agents) totally aghast at terms they've entered into when explained to them by the escrow officer.

Prepping buyers for what to expect when purchasing an REO property is extremely important.  Many buyers have previously purchased a number of properties, and are apt to "tune out" while we review the addendum.  No problem is the transaction proceeds smoothly to closing (as most do), but... heaven forbid a problem crops up and some of those one-sided clauses are invoked.

Great comments (as usual) from the AR membership. It is amazing how we all share these common experiences as we do our jobs from day to day!

It's so important to set up our buyer's expectations from the beginning and this is just one more thing to prep them for when getting involved in an REO property.

Yes, and please tell buyers that an acknowledged offer and even a buyer signed addendum does not constitute a ratified contract. BOTH parties need to sign and the seller can reject any offer at any time if they have not signed it. Seller can also come back and ask for highest and best if they have received other more attractive offers while your client was reading the addendum.

Richard, a buyer getting into an REO purchase had better have their financing pretty well secured before they get into the deal in addition to being prepared for the bank addenda. The purchase and sale agreement is typically the opening up of the deal then wait to get the bank's addenda which is what everybody will use for the rest of the transaction, Although not very common, if there are circumstances that require attention that the bank was unaware of, they will be lenient in their deal.

Over the years I've gotten to know several of the banks addenda quite well.  And more times than not they can be modified to include some things in the original offer.  Lots of times agents don't ask so their buyers don't know this can be done.  But it never hurts to ask.

Michael in #46 has an interesting strategy of having a stip. that says that the addenda do not override the original contract. But usually the addenda has a stip. that says that the addenda override the contract.  To me it seems like an endless loop of one saying that they override the other.  I'm not a lawyer but I would think that the last thing added to the contract rules over anything that came before that is now in conflict.  I'll have to pass it by my attorney.

Just had this discussion with a buyer this morning.  Our Colorado contracts greatly favor the buyer, but the addenda from most of the banks/asset management companies certainly change that.  However, I have countered some of their things like increasing the number of days to complete the inspection, etc. and they agreed to it.

Hi Richard-

The addenda? They are often so complex (being generally written to cover the law in every state, that a good attoney and some reading glasses are a Buyer's criticasl allies.  There's an additional reason to read them  - the information is often unexpected by the Buyer.  Never presume in Real Estate!

Sara

Absolutely. I

t basically IS the contract.

The two things I always zoom in on with bank addensums are per diem charges and passive contingencies.

Great post Richard, and oh so true.  Got to read the fine print on these little suckers!!

I explain to my buyers that when they buy an REO they may be getting a great deal but there may be more uncertain issues and extra costs - they can't expect to buy one the same way that they buy under our standard contracts and guidelines.  I believe an attorney should review and explain to a buyer what the differences are and make sure they understand it.  I am not one and don't know all the ramifications of what clauses might contradict or override and what needs to be clarified.  You can counter their addendum - I have had a few REO's that the buyer said he didn't need to have an attorney review it, and they closed fine, but then I agonize if I missed something.  Now, I really try to insist they have an attorney at least review it - a couple hundred dollars well spent.

Do not buy a property because you like the appliances-buyers get so hung up on the little things!!!

Quite honestly i am sick of the banks and the Govt.

i am tired of they trying to control everything and everyone. From REOs to short sales. It seems THEY are the only ones who can make money even when its their fault they are losing it! And we aid and abet them!  I wish NAR / FAR and everyone else would grow a set and tell them thats not how business is done. Let them sit on all their inventory for 3-6 months and see who is still around? Of course then we would have to bail them out again wouldnt we? Hope in Novemebr everyone wakes up and sees we made a mistake 24 months ago and thing can move in a different direction.

Sorry for the rant but your well written blog made me think about it.....

Oh yea, and my favorite is "there can be no transfer of title again for 30 / 60 /90 days"....Gee whiz....now i can't do what i want with what i own.....

Timely post Richard.  I just taught a buyers agent workshop a few weeks ago and I reminded them that the buyer should ALWAYS take the addenda or counter offer written by the banks LAWYER to their LAWYER.  Many complained that there was not enought time to do so without loosing the property. I suggested having a good real estate attorney on retainer that would allow us to email them the paperwork and have them contact the buyer to discuss the ramifications. 

To Sergio....Rant on my friend.  You could not be more correct.  We should all take a lesson from Mrs Regan and Just Say No!

Thank you for presenting a GREAT Reminder to our Buyers, I am re-blogging! Customers trust us so they want to sign without reading and we won't let them.  

The paperwork might not be recorded publicly but it is still a contract with terms and obligations.  If you don't pay attention, you can get hurt.  We insist they read EVERYTHING!  Joy

Well said. The addenda supercede the contract and this is why they need read word for word. These documents are so important and the buyer must understand them so there are no surprises.

As an agent that sells REO listings myself, I can only concure!  It is so very important both the REO agent and the Buyers agent review them as well.  Many banks make changes to the purchase agreement in their addenda without notice to either party.  They just send them out hoping no one notices any changes or asks any questions.

To be honest I find it humorous when issues come up at the closing table like the buyer finding out they accepted the cost of the special assessment, city code violation fees, late or unpaid HOA fines and assessments.  Don't get me wrong.  I feel bad for the buyers who didn't understand what they were signing. What I find funny is the dumb founded look on their agents faces and watching their agent scrabble to explain and figure out how to settle the issues.  Most don't because the buyers choices are to accept, cancel and lose their earnest money or delay and rack up $100 per diem a day until they realize they are going to end up paying these fee regardless if they want the property.  Have watched many an agent work for near free because the decided to eat the costs for their buyers rather than seeing the deal blow up and face the music.

Simple fix!  Read every line of every document and you will never find yourself in this situation.

If you don't??

In a couple of years these buyers call me to list the property and help them buy move up homes because I follow up with them!

What the REO Sellers are calling an Addendum always feels more like a counter offer to me, at least based upon the common law dictionary explanations:

An addendum is a thing to be added; an addition. For example, it may be used to add supplemental terms or conditions to a contract or make corrections or supply omissions to a document. An addendum is often used to supply additional terms to standardized contracts, such as leases. Addendum is singular; the plural form is addenda or addendums

A counter offer is an offer made in response to a previous offer by the other party during negotiations for a final contract. It is a new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract.

We have had fully executed contracts cancel at the closing and have had some that foreclosed after agreement but prior to closing.

Every bank has different language in their addendas. Both the listing agent and selling MUST be clear in what each addenda state. Then make sure the buyer is aware of the terms. The addenda usually contridict what the purchase/sale agreement states.

Richard ... Thanks for this article. It's my experience that lender owners in REO situations who are selling always have their owner contract forms and disclosures.  While some of these appear to be simple and common sense, we go through these contract forms line by line with our buyer clients to make sure they know and understand terms, which are presented as mandatory by the seller. 

We once had a buyer client who was adamant about removing a certain term in the lenders adhesion contract form, and he did that. However, the REO seller didn't agree with the change and sold to somebody else. 

Great original post and some great add-ons too. Its one of those things where there is really little room for negotiating the wording. Many REO offers I have helped clients on, all have multiple offers along with them. If you want it, don't argue, and take the wording as-is.

Great post.

In Virginia the bank addendum does trump the sales contract, however, an additional local addendum can be used to correct or overrule the bank addendum.

The best use of the local addendum is to correct misspellings of a buyers name, the property address, etc.

However a local addendum can also be used to document things like completion of in-progress repairs the bank has already ordered which are not addressed in the bank addendum.

This is an important tool that experienced buyers agents and listing agents can use in these situations.

At Your Service!

Jim Gilbert

(Deanna & Jim's GOLD Team has handled 500+ Northern Virginia transactions in the last 10 years including 150 some bank-owned sales and many successful short sales.)

As one sided and intricate as a bank addendum can be, they are usually just full of rules to abide by to get the deal your client really wants. I rarely have had any issues with the purchase addendum's from the banks I work with. The only buyer I have had lose their EMD was due to their own fault. They thought that the rules of the purchase addendum did not apply to them and tried to back out of the deal after the inspection period was over.

I always tell my clints when I go over their purchase offer, "As long as you do what you say, and say what you do, you will not have any problems."

The addenda are typically nationwide agreements used in all 50 states.  Sometimes the agreement actually contains illegal clauses in it.  In Florida title companies can only charge certain specific fees and I've seen time and time again where these addenda try to charge the buyer with fees that are illegal in Florida.  A buyer agent will notify the seller's title company if they are trying to charge illegal fees. Many of their title companies are completely clueless.

As an REO agent, I always post a copy of the bank addendums in associated docs, along with a page of instructions/FAQ's.  I have had many transactions with buyer's agents who never bother to read the documents, let alone have their buyers read them.  When issues arise during the transaction, they then try to argue with me over the terms they agreed upon.  I tell them that they can either comply with the contract or fight it out with the banks attornies. Michael #46, I would be careful about writing that type of verbiage into a contract, because a bank will NEVER honor it.

Oh, the addenda...  Our contracts are 13 pages long, yet some addenda are even longer.  Thank goodness we use attorneys here as some of them are full of legalese and are hard to understand.  They range from an easy-to-read single page to many pages that could be bound to keep them in line.

On one transaction, the buyer's attorney told him it was the worst addenda he had ever seen and advised my buyer not to move forward.  My buyer listened to his attorney and we found a better deal.  Of course, my first reaction was, if you want a foreclosure you either accept the addenda or not, and it's all written in the seller's favor.  Yet the attorney felt the second transaction had more acceptable addenda and everyone was happy in the end.

I work mostly as a buyer agent and although the addenda usually favor the seller, there are ways to get some provisions of the original offer into the transaction, especially with regard to things the seller is paying for on behalf of the buyer.

Experience with this type of transaction is always useful to build on; sometimes you can get things for your buyer that are not normally included with that bank (seller). For example, I have found that often Fannie Mae will allow the termite policy (a normal seller cost in Arkansas but not something that Fannie usually pays for) to be included in the buyer's closing costs and prepaids, if this is stipulated in the original offer. Of course, it all depends on the listing agent and on the asset manager as well.

Further, I almost always recommend that the buyer select his/her own closing/title company, which (from what I understand) is permitted under RESPA rules. In Arkansas the title company that does a lot of the REO properties has the sellers' interests at heart and doesn't always find all of the liens or other clouds on the title. It may cost a little extra, but having a separate title company has prevented extra expenses (i.e. paying liens that were not found by the REO title company) and problems down the line for my buyers. In a recent transaction, my buyer's title company found that the property had not been foreclosed properly; the property had to go through the foreclosure process again.

There's no substitute for experience, and with the large number of REO properties still on the market, it just points up the necessity for a buyer to have a good buyer agent. Lots of pitfalls, these transactions are not for the faint-hearted.

Great info. I am actually in the process of purchasing a foreclosure as we speak. Thanks.

Good post.  I think it's a good idea to make the offer contingent on receipt and approval of the Seller's Addendum by the Buyers. 

these addenda are the reason  that i advise most buyers to be ready to walk on  the reo properties if the deal starts to spin sideways.  they are one sided and deal with virtually all  the core elements of the deal...they are rarely just housekeeping item.

they are most frequently not addenda at all, but wholesale revisions of the contract rising well above the essence of a counter offer.    they are frequently prepared to appear as if the buyer is making the original offer on the terms that have been dictated to them.  in essence the 'addenda' are construed as the buyers original offer...a fact  that will certainly arise, and be important, if the deal gets to a litigation.

from deposits, to days to perform, to breach, to per diems, to when  the deposit is released they, are entirely one sided and most frequently are at odds with local customs.   some even have the buyers deposit being used to pay for HOA documents in a prerelease of funds.  add to  this that  the escrows are typically their lap dogs and you have a very uncomfortable scenario where the heavy handed sellers have relegated their agent, and us, to the position of clerk.

it seems that may problems would be eliminated if the buyer's agent got a copy of the bank's standard addendum before making an offer. The an offer could be made based partly on typical terms in the addendum. Perhaps the trick is to get a copy of the addendum before making an offer. Will most banks allow that? Please let me know if you have an answer.

Maybe I'm dreaming, but it seems that a buyer should be able to charge the bank a per diem fine just like the banks do when there is a time delay. The last time I represented a buyer in an REO transaction the bank changed deadlines and dragged things out for several weeks. We just went along with the delays. I would like to "level the playing field" next time. Any thoughts on this?

As a minimum the addenda provided by sellers of foreclosed properties is very important and should be viewed as controlling because it most likely is a counter offer. I stay away from the minutia of the legal technicalities of which there are many including but not limited to 1) does statute forbid the waving of certain rights of the buyer even if agreed to in writing or 2) does the entity signing the sales contract have the authority to sell the property. As to item 2) above most often the listings and contracts are signed by an individual employed by a loan servicing company for which we seldom, if ever, have evidence that the fee title holder has conferred upon the servicing company the authority to sell the property.

To my client buyers it is best to warn them that all of the provisions of the addenda required by the seller are merely their first lines of defense to control the transaction until settlement and to avoid or defend against any claims after settlement.  They, the buyers, should understand that the sellers will use the documents to avoid costs they do not want to incur.  The buyers must make their choice as to whether or not the property is worth to them not only the purchase price agreed but the risks inherent in the addenda.

The addenda are posturing because the ultimate choice of the buyers & sellers will boil down to do we close or do we terminate because seldom is it worth litigation.

Bill

Very timely information here. I am currently representing a buyer trying to purchase a bank-owned property. I did recommend that the Buyer have a real estate attorney review it, an attorney I have worked with many times, and she advised him not to sign it as it was. She made changes to their "addendum" and he signed it with the changes. It will be interesting to see how the servicing company responds. They have not signed the original offer that they supposedly "accepted". We have completed the home inspection and septic inspection and both went pretty well. I'm wondering if this will really get to settlement. The bank was Wells Fargo, but the servicing firm is who presented the two-ton addendum. Has anyone had a bank accept the modifications to their addendum?

Well the last three transactions I was involved (CA) the buyer -same buyer- decided to counter the terms of the addendum. You had to see the reaction of the bank.It was unreal.On our final counter we composed a letter indicating that the client is purchasing the properties to solve his problem and not the other way around and the bank wasn't in any position to dictate policy.Bottom line was take it or leave it. The buyer was emotionally prepared to walk. After the letter the bank played ball.Those were some of the easiest transactions I ever had.All of us have experienced one way or the other the power of walking out.Maybe it is time more people start doing that.I think we get cote in to rules too much letting them to control a sale.It is my opinion that sales as an act are simple we must find a way to keep them that way.

Excellent blog!!!  These addendums are not routine and do protect the banks.  I explain to my buyers while we are in the car on the first trip out what they might expect throughout an REO transaction.  Prepare, prepare, prepare.

Richard:  Addenda and addenda! There ARE bargains out there for the brave buyers.

The addenda allow the bank to control the sale up to the moment of recording...AND hold themselves harmless from any advantage they might have taken of the buyer.

Great post, the addenda usually favors the seller.

My favorite is the addenda that states the bank may know about hidden issues with the property or clouds on the title or liens that they didn't clear but they don't have to tell the buyer about these. Caveat Emptor!

I like what Bob Haywood said.  That pretty much sums it up. For everyone's protection, I always encourage my Buyers to also review with their attorney, if they have one.

Oh the number of times I've seen buyers get into trouble. I tell them to read it, I point out issues I think are a problem and then they are surprised to find that the bank "means it". The classic is the per diem for late closing. I show them this in the addendum and they just ignore it....ugh.

Always read before signing!

Good post.  I'm happy to report that a few good listing REO agents here in Phoenix have started including the Addendums as "samples" in the listing docs section so that we can provide them to our buyers up front.  That is an awesome way to list an REO.  I can send the docs to them before they even see the property to know what would change from the purchase contract 

Managing expections is critical in todays market!

What's with all the addenda? How often do you get more than one addendum back on an offer? I'm with Bob #5- most of what I've seen is pretty simple, straight forward, they have all the rights and protection and the buyer has none. In our area most companies use different purchase agreements, so we're already used to reading everything- nothing's boilerplate.

It is good to note that many addenda are designed to cover the entire nation so some sections may not apply to your state at all.  This can be confusing to a buyer.

Richard, Thank you so much for your post & responding comments. I found it very helpful and timely, since I'm right now representing my daughter in purchasing a short sale property. Hopefully the process isn't as painful as some noted. I'll make sure to have each word read and reread when the bank addenda are received.

so true! and its always a real bummer that most banks won't release there addendums until they come to "terms" with the buyers, where if the buyers had them upfront it would make the first week of the transaction less bumpy.

I sell a lot of foreclosures and although the addendum can be overwhelming, for the most part, they basically just say in every way possible that the seller warrants nothing, makes no guarantees and the property is sold "as is".  If you understand that and do your due diligence then you can get some amazing deals.

I have never had a situation where the appliances were removed prior to closing although I showed one recently where apparently the owner went so far as to remove the kitchen sink!

Buyers considered it humorous when they went to take measurements a week before closing and saw what would have been their shed going down the street on a trailer. Sure enough, when they got to the home their shed was gone. Bank’s agent (with the asset mgr’s approval) was kind enough to file a police report. Yup, previous owner snatched it. 

What is NAR's position on this?

These addenda do seem for the most part give the sellers all the rights and negate nearly everything in the original buyer's offer. I always prepare my buyers  in advance for the "addendum from the bank" when they are making an offer on a REO property.  That way, it's much less of a surprise and if followed carefully and with caution, the transaction will be successful. 

Great post. Just couple of days ago I discovered that myself when looking at a great( REO) property which had so many little catches... couple of addendums. We  need to be very careful.

Thank you!

I personally wish we didn't have to fill out the standard purchase agreement if the bank has their own addendum/agreement that must be completed.  They always change so much of what the standard purchase agreement says, it seems like a waste to complete a 7 page contract already knowing it's going to be thrown out the window.  There must be a better way to handle these transactions...

Chanda panda

I've had to explain to buyers why it almost doesn't matter what we put in our P&S Agreement, as the bank will always have their own requirements.  It definitely helps if listing agents put these Addena on MLS so we can address it in the beginning.......

Richard, Thanks for the post and to all who have contributed to the discussion. IMO, Banks addenda should be attached to the MLS listing.  Would save a lot of time for all parties if attached.  If not attached, I agree with Ralph #53.  Be sure you (selling agent) & Buyer READ every page, and counter any unfavorable terms.  Would hate to be caught in a situation like posted in comment # 62.  No dumb founded look here!!

Very good points, Richard!  Great advice!  The addenda can be very lengthy and intimidating.  It is critical to have a thorough ubderstanding of them when making an offer.

This blog came at a great time for me.  I just received a call to show an REO tomorrow.  This is great advice.  Thanks!

I list quite a few REO properties and have been for the past 11 years.  Most of the banks I worked with in the beginning did provide the addenda when the listing agreement was sent.  Now, I would say 98% of the banks DO NOT provide me with the addenda until after they have verbally accepted an offer.  It would make it much easier for me (and the buyer/buyer's agent)  if I had them in advance so buyers could review and sign at the same time as they make the offer, but that's just not possible.

Well said Richard!  Buyers need to be extremely cautious about the time frames and release of contingency items as some become passive and happen without them giving written consent. 

There are red flags in almost all deals...REO is usually spelled  r e d f l a g . Susan, #106, I agree with you, however the addenda changes so often now that what they sent last month is obsolete and next weeks hasn't been written yet!!

Mike McCann Your Smiling Nebraska AG Broker!

Richard! 

 This is the absolute truth!  I have to reblog this post because people in LA County need to be aware of this.  Sometimes the idea of bank owned or REO properties seem like the normal now a days.  The truth is that buyers do believe that a property which has already been foreclosed on is the best deal going.  Sometimes with regard to price that is true.  But not always!  And the addenda is the controling document to the sale!  Terms and conditions are changed tremendously!  Buyer beware!

Wendy

Many times these same addendums are used for every sale in every state across the country. And since each state has different laws, what is legal in the addendum in one state may not be legal in another.

Thanks for the post.

Richard,

So glad you brought it up. 

My first encounter with these was a 23 page addendum.  The language contradicted many items in the purchase agreement.  I did go over it and over it and over it, until I made sure there was nothing that could sting my buyer.  One of the items I found interesting was that the bank wanted the buyer to pay for the seller's closing costs!!!!!!!!!!

Keep in mind that you do not always have to agree with every item in the addendum.  I was able to get some things changed from time to time.  Also, when I inquired as to why they have them, this is what I was told.  Because each state has different laws and different purchase agreements, etc., it was easier for the processors to get through the paperwork if they were working with an agreement that was more uniform to each transaction.  Makes sense.

Finally, I have made it a habit of getting the addendum to the buyers ahead of time.  I ask them to read it over thoroughly, but I temper that with a reminder that this was written by an attorney and I don't expect you to completely understand it.  I tell them that when we get together we will go over it and I will answer any questions that they have.

We just have to make sure that we as agents, lenders etc. actually do understand it so that there are no surprises to our buyers in the ninth hour.

Linda S. Cefalu

Good advise.  One of the problems with this business are that there are so many forms and disclosures most does not get read or it gets ignored.

One issue that comes up is that the addendum will state that anyting in the addendum that contraticts state laws is not binding. that is some help to the buyer.

Marcy

I just reblogged this!  Good advice for my Florida buyers too!

Jamey

I closed REO's for over a year.  I saw this time and time again where the buyers had to learn this the hard way.  Great article!

Richard, It isn't always the listing agent that controls the addenda. I list quite a few REO properties and in most cases, the addenda isn't available even to me prior to offers on the property.  When I have the addenda upfront, I always post them just like I would any docs I have on a regular property. 

I am always upfront with buyers who are going to make a purchase on a REO property.  When we are writing the offer I immediately will let them know to expect a counter addendum from the bank that will change the terms of the contract.  I explain the addendum to the buyer and make sure they read it and understand it themselves before  moving forward.

Thank you for this advice and the experiences of others.  Margaret C.

This is really true. I try to explain to buyer that banks will have their own forms and if you want to buy the home you have to do it their way...

Great Article. I've nevr had a buyer walk because of the contents of the addenda but you're absolutely right when you say that a buyer needs to read and understand them. They are definitely written to protect the banks and not the buyer. The one that seems to scare buyers the most is the 'per-diem' clause where the buyer has to pay x dollars per day if the closing goes past the date stated in the contracts. I have yet to have any delays be the fault of the buyer. Maybe we should have a per-diem clause in there for the banks. Do you think this might happen? (HA!).

great great great advice. Thanks for sharing. I too have not had a situation but could see where this is so important.

Thanks again.

That is good advice and those addenda are always in the Banks favor.