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Bank Foreclosed Properties (RE0) Questions and Answers
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A: An “REO” is a commonly-used acronym for “real estate owned” by banks. Instead of an individual person or persons owning the property as in a typical resale transaction, a bank owns the property instead. The bank typically acquires title to its REO properties through the foreclosure process. However, REO properties may also be acquired through other means, such as a deed-in-lieu of foreclosure, tax sale, or corporate housing. To THE TOP
A: Investment in REO properties is the next big trend in Real Estate. New home construction and sales will keep slowing down in nearly future. Rising interest rates will cause adjustable rate mortgages to become more expensive and increase the incidence of defaults on payments. To THE TOP
Q: 3. How do REO prices compare with normal home prices?
A: The banks who own REO properties are interested in quickly transferring properties to interested investors. This creates situations where the properties are available to investors at 10-30% below market value. To THE TOP
A: The “REO” properties that we pick from hundreds of properties have to meet certain criteria before we present them to our potential buyers. Then we will post them in our “Deal Discussion Blog” to allow all the visitors to valuate those deals. You can see what other people think of it before you take any action. However, some people might want to criticize the deal just because they are very negative people or they want to get the deal themselves and do not want other buyers to write any offer to compete with them. After participating in our “Deal Discussion Blog”, you should have a very good feeling of what is a good deal. It takes a little bit of time. Just be patient. To THE TOP
A: It depends. Here are some things to consider:
· How much money do you have to invest?
· What are your FICO scores?
· Are there any particular areas where you enjoy vacationing or might want to retire?
· Where are you from, or where do your family and friends live?
· Can you afford a negative cash flow to get better appreciation and lower you taxes?
· Or do you need a positive cash flow to increase your monthly income? (This will also increase your taxable income, unless you are using self-directed IRA)
· Do you prefer a low down payment and low cash flow, or vice versa?
· Is your goal cash flow or appreciation? To THE TOP
A: Rebate4buyer.com has a very good relationship with many bank asset management companies and has insider information about some REO’s that is not even on the Market. To receive a FREE list of REO properties, please fill out a San Diego REO (Real Estate Bank Own) properties request Form through our website. You can also get a pre-foreclosure list through www.realtytrac.com. To THE TOP
A: Once you locate a property you want, contact us immediately, we will show you the inside of the property, order some necessary property report, negotiate the contract, open an escrow, help order the property title report, inspection, title insurance, etc and finally costing the deal. Most importantly, we will give you up to $20,000 or 60% of buyer agent’s commission at closing. For deal about our real estate rebate program please click here. To THE TOP
A: Not all the Banks or lender will lend to REO’s purchase, because generally REO properties are not in a move-in condition. Buyer sometimes have to get a bridge loan to purchase and fix it up then refinance the whole property, which can cost buyer higher loan cost and higher mortgage interest rate. However, rebate4buyer.com have locate a few lenders and banks who specialized in REO property lending can help you get a REO property purchase loan at the same interest rate of normal property purchase loan rate. Fore more information about REO property loan pre-qualify or pre-approval, please contact us through our website. To THE TOP
A: Normally, if there were damages before, REO property owner, the bank or lender, may have hire some people to fix it, but they are fixed generally cosmetically, and for the benefit of the banks and lenders, not for the benefit of future buyers. Does that make sense to you? To THE TOP
Q: 10. Is an REO sale the same thing as a foreclosure sale?
A: No. A foreclosure sale is the sale of real property, usually at an auction, generally triggered by a homeowner’s inability to pay a mortgage loan. An REO sale, on the other hand, is the sale of property owned by a bank. Let’s say, for example, Harry Homeowner has a mortgage loan secured by his home. If Harry defaults on his mortgage loan, his lender may initiate the foreclosure process and eventually acquire the property at a foreclosure sale. Upon the lender’s acquisition, the property becomes part of the lender’s REO portfolio. The subsequent sale of that lender-owned property is commonly called an REO sale. For a more detailed explanation, see the answer to Question 11 (How does a property become an REO property?). To THE TOP
A: In California, foreclosure is commonly handled through a trustee’s sale (not court action) where the property is sold to the highest bidder at an auction open to the public. At the trustee’s sale, the foreclosing lender may make a credit bid in the amount of its unpaid debt plus foreclosure costs, but the trustee typically requires any other accepted bid to be paid in the form of cash or cash equivalent. Because of the onus of paying cash, rarely does anyone outbid the foreclosing lender at the trustee’s sale. Once the foreclosing lender acquires title to the property by trustee’s deed, the property becomes part of that lender’s REO portfolio. To THE TOP
Q: 12. Why would someone wait to buy a property from an REO lender, rather than acquire it as the highest bidder at the trustee’s sale?
A: Acquiring property as the highest bidder at a trustee’s sale is likely to have a higher potential for return than buying the same property from the REO lender after foreclosure. However, many people are not in a position to pay all cash for real property as is often required for trustees’ sales, but not for REO sales. Furthermore, buying from an REO lender may be less risky, because a foreclosure sale purchaser often has no opportunity to inspect the interior of the property before buying it, despite the possibility that the property may be distressed (see Question 15 Why are REO properties sometimes characterized as distressed properties?) or occupied by tenants or previous owners (see Questions 19 If someone is occupying the property after the REO lender acquires title through a trustee’s sale, can the REO lender or agent resort to self help measures to recover possession of the property?; Questions 20 Upon acquiring a property at a trustee’s sale, can an REO lender or agent evict the previous owner or the previous owner’s tenants?, and Question 21 What if, while an REO property sat vacant, someone apparently gained entry and has taken up residence?). Acquiring title to an REO property may also be less risky because an REO lender is likely to take care of certain title issues, such as unpaid property taxes. Indeed, it can be very difficult for a buyer to obtain title insurance when acquiring property at a trustee’s sale, but not an REO sale. To THE TOP
Q: 13. What are the general characteristics of an REO transaction?
A: Some of the major distinguishing characteristics of an REO transaction are as follows:
• Lower Price: First and foremost, an REO property tends to sell for a lower price than other comparable properties, depending on local market conditions. That’s precisely what generates so much public interest in REO properties. Some experts, however, consider the discounts to be limited, especially given the possible distressed nature of REO properties (see Question 15 Why are REO properties sometimes characterized as distressed properties?).
• Bank Representatives: The seller in an REO transaction, the bank, acts through its employees and representatives. An REO lender may outsource the management and disposition of its REO properties to asset management companies (see Question 6). Unlike other sellers, the REO employees and representatives have not occupied the properties, and have no emotional attachment to the properties they are selling. The REO properties may be generally characterized as unwanted assets, although the banks want to demonstrate to their investors that they sold these assets for the highest prices possible. Indeed, because REO lenders and their asset management companies have a lot of inventory to sell, they possess certain leverage when negotiating listing and sales agreements.
• Timing: An REO transaction is generally more cumbersome and takes a longer time to process compared to other resale transactions, from negotiating an accepted offer to closing escrow. Whereas other resale sellers may be able to answer questions instantaneously, a question posed to an REO lender may have to go through the asset management company and several levels of approval at the bank. And they don’t work evenings or weekends.
Q: 14. What are asset management companies?
A: Asset management companies are companies that REO lenders may hire to oversee the sale of their REO properties. Some asset managers work in house for a department or division of the bank itself, whereas others work for a separate legal entity altogether. To THE TOP
Q: 15. Why are REO properties sometimes characterized as distressed properties?
A: Some REO properties are no different than other properties for sale. However, REO properties may be distressed as a result of simple neglect, intentional vandalism, or both. As for neglect, before an REO lender even takes over a property, the previous homeowner was likely to be experiencing financial difficulties, and thus also likely to have foregone ordinary maintenance and repair of the property. As for intentional vandalism, when some homeowners lose their properties through foreclosure, they have been known to take their anger and frustration out on the property. They may strip a property of its fixtures, cabinets, appliances, and even copper plumbing, as well as damage the property by smashing out the walls, breaking window panes, pouring cement down the toilet, or flooding the property by leaving the faucets on.
Things may not improve when the bank takes over the property. An REO property may sit vacant for many months with the utilities shut off, which makes it susceptible to further neglect and vandalism. Even absent any neglect or vandalism, there is the possibility that a piece of property posed such serious issues for the previous homeowner (e.g., significant structural defects or neighborhood problems) that, coupled with market conditions, the previous homeowner purposely decided to get rid of the property through the foreclosure process. To THE TOP
A: Each REO lender has its own valuation requirements, such as drive-bys, comparative market analyses (CMAs), broker price opinions (BPOs) (see Question 17 What is a BPO?), and full appraisals. An REO lender may require different valuations at different stages of the foreclosure process, e.g. a BPO before filing a notice of default, but a CMA every three months thereafter. To THE TOP
A: BPO is an acronym for a broker price opinion. Like a comparative market analysis (CMA), a BPO is an in depth analysis of a home’s current market value, but it’s usually prepared for a bank or asset management company. The bank or asset management company typically sets certain parameters for what it want in its BPOs, such as photographs, comps, interior inspections, repair estimates, or the completion of the bank’s own forms. REO lenders generally pay less for BPOs than for appraisals. To THE TOP
A: In a cash-for-keys agreement, an agent of the REO lender offers to pay a certain sum of money to the occupants of a foreclosed-upon property if the occupants voluntarily vacate the premises in a certain number of days and turn over the keys. For instance, an occupant may be offered $2,500 to vacate within 15 days and release in writing the REO lender and agent from any and all further claims regarding possession of the property.
As background, when a lender acquires property through a trustee’s sale, the property may be occupied by the previous owners or tenants of the previous owners, who must be evicted, if at all, through the legal process of an unlawful detainer action. A cash-for-keys agreement avoids what could be a costly, cumbersome, and time-consuming eviction proceeding. To THE TOP
A: No, that’s not a good idea. An REO lender who resorts to self-help measures, such as changing the locks or physically removing the occupants or their belongings from the property, may be held liable under landlord-tenant law for monetary damages under a claim of forcible entry and detainer, and even for return of possession of the premises under a claim of restitution. The REO lender is better off hiring an unlawful detainer attorney or eviction service to regain possession through the legal process. To THE TOP
A: In most cases, yes. Upon acquiring a property at a trustee’s sale, an REO lender can commence eviction of the previous owner by serving a three-day notice to quit (Cal. Code of Civ. Proc. § 1161a(b)). As for the previous owner’s tenants, the REO lender may commence eviction by serving a 30-day notice to quit (Cal. Code of Civ. Proc. § 1161a(c)) if the lender’s deed of trust was recorded before the tenancy was created, as is often the case.
Local rent control ordinances may alter the REO lender’s right to evict. REO lenders should refer to unlawful detainer attorneys or eviction services to handle any eviction matters. To THE TOP
A: The REO lender and agent are well advised to take inventory and pictures of the personal property, as well as follow legal procedures for disposing of the personal property left behind. That legal procedure involves, among other things, the service of a Notice of Right to Reclaim Abandoned Property and the eventual sale at a public auction of any property valued at $300 or more. Otherwise, to dispose of someone else’s personal property, without that person’s consent, exposes the REO lender to unnecessary liability.
As an example, let’s say an REO lender does not follow the legal procedures for disposing of personal property left behind. When the REO lender gains possession of a piece of property after foreclosure, the REO lender discovers the previous homeowner left behind a faded and worn-out sofa that appears worthless and abandoned. The REO lender, acting without the previous homeowner’s consent, throws out that sofa. That previous homeowner may now sue to recover thousands of dollars from the REO lender under a claim for conversion, by alleging the sofa was an antique or that gold coins were sewn inside the sofa cushions. If instead, the REO lender followed the legal procedures for handling personal property left behind, the REO lender would be shielded from liability with respect to the personal property, as set forth in section 1989 of the California Civil Code. To THE TOP
A: Because “green” swimming pools give rise to West Nile Virus concerns, the REO lender and agent should immediately contact their local mosquito control agency to determine their best course of action. Swimming pools that are not maintained may turn “green” over time from the growth of algae and bacteria, which become an ideal breeding ground for mosquitoes. Infected mosquitoes can transmit the West Nile Virus. For more information about the West Nile Virus, including the location of mosquito control agencies, go to www.westnile.ca.gov. To THE TOP
A: An REO lender is subject to certain legally mandated disclosure requirements and is well advised to provide other disclosures. Note, however, if the bank acquires the property by means other than a foreclosure, deed-in-lieu of foreclosure, or a tax sale, then the required disclosures are the same as for the resale of any property by any seller (See Cal. Civ. Code § 1102.2(c) and (i)).
The following is a list of recommended disclosures for a typical REO sale in California--that is the lender acquired the property by foreclosure, deed-in-lieu of foreclosure or a tax sale. An explanation of this recommended list and the C.A.R. forms to use are provided in the answer to Question 27 (Can you explain the items on your recommended list of disclosures for REO sales?).
• Natural Hazard Disclosure Statement;
• Seller’s Affidavit of Nonforeign Status and California Withholding Exemption;
• Megan’s Law Disclosure;
• Lead Based Paint Hazards Disclosure;
• C.A.R.’s Combined Hazards Booklet;
• Water Heater and Smoke Detector Statement of Compliance;
• Methamphetamine Laboratory Activity Order;
• Condominium or Other Common Interest Development documents (if applicable);
• Seller Property Questionnaire;
• Statewide Buyer and Seller Advisory;
• Agency Disclosure Statement; and
• Agent’s Visual Inspection Disclosure.
In addition to the above disclosures, certain transactions may have additional requirements, including, but not limited to, government inspection or point of sale requirements imposed by local authorities, or special requirements for manufactured homes or government housing.
• Natural Hazard Zones;
• Megan’s Law Disclosure;
• Lead-Based Paint Hazards Disclosures;
• Smoke Detector Statement of Compliance;
• Water Heater Bracing Statement of Compliance;
• Methamphetamine Laboratory Activity Order;
• Condominium or Other Common Interest Development documents (if applicable); and
A Most notably, an REO lender is exempt from the linchpin of California disclosure requirements – the Transfer Disclosure Statement (TDS). However, exemption from one requirement, such as the TDS, does not automatically exempt REO transactions from all other disclosure requirements. Nor are REO lenders exempt from any disclosure requirement for other reasons often espoused, such as they have not occupied the property, they are transitional owners, they are out of state lenders, they are self insured, they are relocation companies, or the buyer signed an “as is” clause.
Note, however, if the bank acquires the property by means other than a foreclosure, deed-in-lieu of foreclosure, or a tax sale, then the required disclosures are the same as for the resale of any property by any seller. That means the bank is not exempt from giving the TDS nor the other exemptions listed below.
• Transfer Disclosure Statement (Cal. Civ. Code § 1102.2(c));
• Natural Hazard Disclosure Statement (Cal. Civ. Code § 1103.1(a)(2));
• Mello-Roos Tax and 1915 Bond Act Assessment Notice (Cal. Civ. Code § 1102.6b);
• Supplemental Property Tax Notice (Cal. Civ. Code § 1102.6c);
• Homeowner’s Guide to Earthquake Safety (and Residential Earthquake Hazards Report) (Cal. Gov’t Code § 8897.1(c)(3));
• Military Ordnance Locations (Cal. Civ. Code § 1102.15);
• Industrial Use Zoning (Cal. Civ. Code § 1102.17); and
• Private Transfer Fee Notice (Cal. Civ. Code § 1102.6e).
Regardless of the above exemptions, an REO lender must nevertheless disclose any actual knowledge of material facts that affect the value or desirability of the property. The often-quoted legal maxim, “caveat emptor” or “let the buyer beware,” does not apply to real estate transactions under California law. To THE TOP
For REO Lenders
• Natural Hazard Disclosure (NHD) Statement : The law on natural hazard zones is confusing. An REO lender is specifically exempt from providing the NHD Statement (Cal. Civ. Code § 1103.1(a)(2)). However, an REO lender is not exempt from other provisions of California law requiring sellers to disclose the fact that a property is located in a natural hazard zone. The six natural hazard zones and corresponding laws requiring disclosure are as follows: Special Flood Hazard Area (Cal. Gov’t Code § 8589.3); Area of Potential Flooding (Cal. Gov’t Code § 8589.4); Very High Fire Hazard Severity Zone (Cal. Gov’t Code § 51183.5); Wildland or State Fire Responsibility Area (Cal. Pub. Res. Code § 4136); Earthquake Fault Zone (Cal. Pub. Res. Code § 2621.9); and Seismic Hazard Zone (Cal. Pub. Res. Code § 2694).
If the law exempts an REO lender from providing the NHD Statement, but not from disclosing natural hazard zones, it makes sense to simply use the NHD Statement anyway to document the required disclosure of natural hazard zones. Moreover, the listing agent is also strongly encouraged to provide the buyer with the NHD Statement, because the law specifically places a duty of disclosing four of the six natural hazard zones on the seller’s agent if any (Special Flood Hazard Area, Area of Potential Flooding, Earthquake Fault Zone, and Seismic Hazard Zone).
• Seller’s Affidavit of Nonforeign Status and California Withholding Exemption: Under federal law, a buyer must withhold 10 percent of the sales price from the seller’s proceeds, and send that amount to the Internal Revenue Service (IRS), unless an exemption applies (26 U.S.C. § 1445). An exemption is available if, for example, an REO lender provides a written certification that it is a nonforeign corporation or LLC.
Similarly, under state law, a buyer must generally withhold 3¹/3 percent of the sales price, and send that amount to the Franchise Tax Board (FTB) unless an exemption applies. An exemption is available if, for example, an REO lender provides a written certification using C.A.R.’s Form AS that it is a corporation or LLC that is either qualified through the California Secretary of State or has a permanent place of business in California (Cal. Rev. & Tax Code § 18662(e)(3)(D)(v)). A corporation has no permanent place of business in California if all of the following apply: (1) It is not organized and existing under the laws of California; (2) It does not qualify with the Secretary of State to transact business in California; and (3) It does not maintain and staff a permanent office in California (Cal. Rev. & Tax Code § 18622(e)(1)(B)). .
• Megan’s Law Disclosure : An REO sale is not exempt from a seller’s duty to disclose the availability of a database of registered sex offenders in at least 8 point type font (Cal. Civ. Code § 2079.10a). The legally required notice is set forth in C.A.R.’s RPA-CA and other purchase agreements. If, however, an REO lender opts to use its own sales contract, the Megan’s Law disclosure may not be included, but is still required.
• Lead-Based Paint Hazards Disclosures: An REO sale is not exempt from federal law requiring disclosure of lead-based paint hazards when selling residential properties built before 1978. Briefly, the four lead-based paint requirements are as follows: (1) Provide the buyer with an EPA approved lead hazard pamphlet (such as "Protect Your Family From Lead in Your Home" contained in C.A.R.’s Combined Hazards Book (discussed below)); (2) Provide the buyer with a 10-day opportunity to inspect for lead-based paint hazards, unless otherwise agreed in writing (such as C.A.R.’s standard form California Residential Purchase Agreement (RPA-CA)); (3) Provide a lead-based paint disclosure statement to the buyer; and (4) Disclose the presence of any known lead-based paint or lead-based paint hazard in the property (42 U.S.C. 4852d and 40 C.F.R. § 745.107).
• C.A.R.’s Combined Hazards Booklet: This Combined Hazards Booklet is a three-part booklet. Part One is the Residential Environmental Hazards booklet, Part Two is "Protect Your Family From Lead in Your Home," and Part Three is the Homeowner’s Guide to Earthquake Safety. Part One is not required for any transaction, and REO lenders are specifically exempt from Part Three. However, delivery of the Combined Hazards Book is highly recommended because it provides a valuable shield from liability. By law, delivery of the Combined Hazards Book will be deemed adequate for the seller and broker to inform the buyer about common environmental hazards (Part One) (Cal. Civ. Code § 2079.7(a)) and geologic and seismic hazards in general (Part Three) (Cal. Civ. Code § 2079.8(a)). Part Two of C.A.R.’s Combined Hazards Book, "Protect Your Family From Lead in Your Home," is required for most residential properties built before 1978, including REO transactions.
• Water Heater and Smoke Detector Statement of Compliance: An REO sale is not exempt from the water heater bracing or smoke detector requirements. With respect to water heater bracing, the seller of any real property containing a water heater must certify in writing to the buyer that an existing residential water heater is properly braced, anchored, or strapped (Cal. Health & Safety Code § 19211). There are no exceptions to this requirement. As for smoke detectors, with certain exemptions not applicable here, the seller of a single-family dwelling or factory-built housing must have an operable smoke detector (Cal. Health & Safety Code § 13113.8(a)). Additionally, the seller must deliver to the buyer a written statement of compliance with the smoke detector law (Cal. Health & Safety Code § 13113.8(b))
• Methamphetamine Laboratory Activity Order: An REO sale is not exempt from the requirement to disclose a meth lab activity order. Under that law, a seller must disclose in writing to a buyer a pending order issued by a local health officer prohibiting the use or occupancy of a property contaminated by meth lab activity. The seller must also give a copy of the pending order to the buyer to acknowledge receipt in writing. (Cal. Health & Safety Code § 25400.28.)
• Condominium or Other Common Interest Development Documents: The seller of a condominium or other separate interest in a common interest development must provide the governing documents and other items to the prospective buyer (Cal. Civ. Code § 1368(a)). There is no exemption from this requirement for REO lenders. The law also requires the homeowners’ association to provide these documents to the owner upon written request (Cal. Civ. Code § 1368(b))..
A: Regardless of what is customary, it is a good practice for an REO lender to complete and sign the SPQ, because an REO lender has a legal obligation to disclose any known material facts affecting the value or desirability of the property. Although REO lenders may claim to have limited knowledge of the condition of a property, that claim may be contradicted in certain circumstances by inspection reports, status reports, repair estimates, and other documentation that the REO lender has regarding the property. It is also good practice for an REO lender to provide a buyer with the SBSA, because it informs the buyer of various factors that may affect a sales transaction. To THE TOP
A: If an REO lender or asset manager does not provide the recommended list of disclosures in Question 24 (What are the disclosure requirements for REO sales?), a prudent buyer’s broker and agent should consider protecting themselves by taking the following steps before close of escrow:
• Write a letter to the listing agent requesting the relevant disclosures.
• Write a second request for disclosures to the listing agent.
• Write a letter of confirmation to the listing agent that the REO lender and asset manager have not provided the requested disclosures.
• Save all the correspondence with the listing broker, indicating that despite his or her best efforts, the buyer’s agent has been unable to obtain the relevant disclosures. It’s against the agent’s advice for the buyer to close escrow without these disclosures. Also closing escrow without these disclosures may pose serious legal consequences for the buyer. Also it is strongly recommended for the buyer to seek the advice of an attorney regarding those legal consequences.
• Obtain an acknowledgement of receipt for any correspondence sent to the listing agent, or a second best alternative is to retain records demonstrating that the correspondence has been sent (e.g., email receipt, fax transmittal, post office’s return receipt, messenger’s delivery slip).
• Retain in broker’s file all documentation regarding disclosures, and also use conversation logs to document any verbal communications. To THE TOP
A: You are encouraged to consult with an attorney regarding those terms and conditions. The REO lender’s terms and conditions are matters of negotiation for a seller and buyer entering into a purchase agreement. It is the buyer’s choice to accept these terms, reject these terms, or attempt to change them. Some real estate practitioners believe that REO lenders will not deviate from the boilerplate terms in their agreements, but that’s not true in every circumstance. See Question 34 (What are some examples of potentially unfavorable terms for buyers that REO lenders may insert into a sales contract?) for examples of potentially unfavorable terms.
As for contradictory terms between the RPA-CA and REO lender’s addendum, the parties are well advised to clarify these items before entering into a purchase agreement. If not, ambiguous terms will ultimately be interpreted, if necessary, through the legal process by a judge, jury, or arbitrator. To THE TOP
A: Under the C.A.R. California Residential Purchase Agreement or other purchase agreements, a contract to sell an REO property is formed in the same manner as other contracts. According to the RPA-CA, contract formation occurs when the buyer (or buyer’s agent) personally receives the seller’s written acceptance of the buyer’s signed offer.
Alternatively, if the seller issues C.A.R.’s standard form Counter Offer, contract formation occurs when the seller (or seller’s agent) personally receives the buyer’s written acceptance of the seller’s signed counter offer.
In practice, however, REO lenders may not sign sales contracts. In that situation, it is up to the buyer to seek the advice of an attorney and decide whether or not to take the risk of proceeding as if there’s a signed contract.
That a contract for the sale of real property must generally be in writing and signed by the party against whom enforcement is sought is a requirement of the Statute of Frauds (Cal. Civ. Code § 1624(a)(3)). Under certain circumstances, however, a buyer may enforce a sales contract even if an REO lender does not sign on the dotted line of the RPA-CA. For example, a written memorandum that satisfies the Statute of Frauds may take another form, such as a letter, memo, e-mail, or a combination thereof, containing the essential terms of a sales agreement (Cal. Civ. Code § 1624(b)(3)). As another example, an oral agreement to sell real property may be taken out of the Statute of Frauds if the parties subsequently perform on the contract (Cal. Code of Civ. Proc. § 1972). Exactly what constitutes sufficient performance to take an oral agreement out of the Statute of Frauds depends on the specific facts and circumstances of that case. To THE TOP
A: REO lenders, as well as other sellers, may insert terms into a purchase agreement that are potentially unfavorable and onerous to the buyer, although it is up to the buyer to weigh any unfavorable terms against favorable terms. Some examples of these unfavorable terms are as follows:
• Requiring a substantial amount for good faith deposit;
• Requiring a buyer to prequalify with the REO lender;
• Allowing contingencies, but deeming them passively waived through the passage of time;
• Refusing to pay closing costs;
• Refusing to provide a home warranty plan;
• Refusing to provide disclosures;
• Charging a per diem or daily charge for any delays in closing escrow;
• Requiring hold-harmless agreements; and
• Requiring a buyer to waive other rights. To THE TOP
However, the legal effect of the two words – “as is” – is questionable. That a buyer agrees that a property is sold “as is” is unlikely, for example, to act as a waiver of the seller’s duty to disclose any known material facts affecting the value or desirability of the property, or as a waiver of the seller’s duty to comply with the state-mandated water heater bracing and smoke detector retrofit requirements. That a buyer agrees to the words “as is” is also unlikely to prohibit the buyer from subsequently requesting the seller to conduct repairs, although the seller may refuse to do such repairs under C.A.R.’s California Residential Purchase Agreement. Finally, that a buyer agrees to the words “as is” in the seller’s counter offer makes it unclear as to whether the seller still has a duty to pay for Section One work for wood-destroying pests, as requested in the buyer’s offer.
Putting aside the difficulties raised by just adding the two little words, the entire “as is” clause typically required by an REO lender contains additional language that attempts to undercut or waive the buyer’s rights. To THE TOP
A: Yes. Although a home inspection is not legally required, it is an excellent idea for the buyer in an REO transaction to have the property thoroughly inspected by a qualified professional. In a typical resale transaction, the seller occupies the property, personally oversees maintenance and repairs of the property, and provides a prospective buyer with a Transfer Disclosure Statement disclosing the defects of the property. In contrast, the typical REO lender does not occupy the property and may not be aware of the condition of the property. An REO lender is not required to provide a Transfer Disclosure Statement, and yet the REO property may be in disrepair (see Question 15 Why are REO properties sometimes characterized as distressed properties?).
A professional inspector can assist the prospective buyer in ascertaining the condition of the property, and in certain circumstances, a buyer may also want to call in contractors and other professionals to provide cost estimates for any repairs or renovations, which can help buyer to evaluate the deal and maybe negotiate a better price and/or terms. To THE TOP
A: It depends on the buyer’s contractual rights. Under paragraph 3E of the C.A.R. California Residential Purchase Agreement, the REO lender must provide keys and garage door openers at close of escrow, unless otherwise agreed in writing. If the REO lender has failed to perform accordingly, the buyer as an individual person may seek to recover the reasonable cost of replacing the keys and garage door openers in small claims court up to $7,500. To THE TOP
A: Contact our REO specialist, who can gather more specific information for you to help you find the Right Property at the Right Price with the Right Term. To THE TOP
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The information contained herein is believed accurate as of June 28, 2008. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Special Thanks to California Association of Realtors Legal Department.
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