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Representing A Buyer Purchasing A Bank Owned/REO Property
Part Two
By Steven R. Greenberg
This article is a continuation of last month’s article regarding areas of concern in an REO Counter-Offer Addendum typically used by banks in connection with the sale of a foreclosed (“Bank Owned” or “REO”) property.
Previously, it was pointed out that REO Counter-Offer Addendums may provide that the seller is only obligated to deliver insurable title, as opposed to marketable title. Some title companies hired by the REO sellers use this provision of the Counter-Offer Addendum to reject survey objections made by the buyer. It should be noted, however, that the only authorized form of a title insurance policy in the State of Florida is a marketability title policy. Accordingly, the title company cannot just insure over the survey defect thereby requiring the buyer to accept title with the survey defect. This issue typically arises in connection with the encroachment of the residence or some other structure into a platted or deed restriction setback or into a platted or deed restriction utility and drainage easement. Also, I am aware of at least one title company used by REO lenders who is not even reviewing the survey until after the closing, which results in a title exception for the encroachment being disclosed for the first time in the owner’s title policy delivered to the buyer after the closing. Therefore, the buyer has unknowingly purchased a “survey defect” which will arise when the buyer goes to sell the property. For the reasons described above, it is imperative that the buyer have a real estate attorney carefully review the survey and the title commitment prior to the closing and insist, on behalf of the buyer, that the title company remove all survey exceptions except those that the buyer is willing to accept.
Other points of concern in a typical REO Counter-Offer Addendum are as follows:
Many Counter-Offer Addendums give the seller the right, at the seller’s sole discretion, to terminate the Contract if, among other things, the seller has transferred and conveyed the property to a third party. While I have not experienced the termination of a Contract by an REO seller for this reason, the possibility exists and buyers should be advised as to this provision.
2. The REO seller is only obligated to turn over keys in its possession (which may be none). Garage door openers and mail box keys are excluded from the sale.
3. The buyer assumes the responsibility and liability for the refund of any security deposits to any tenants at the property. It is, therefore, critical that estoppel letters be obtained from tenants at the property in order to ascertain the status of rental payments and the existence of any advance rents or security deposits claimed by the tenants.
4. The buyer is not permitted to directly or indirectly cause any inspection to be made by any government building or zoning inspector or government employee without the written consent of the Seller. This is of particular concern when trying to confirm that permits have been obtained and closed out for all improvements on the property. Also, this provision is troublesome with respect to possible non-conforming improvements on the property.
The REO Counter-Offer Addendum supersedes almost every provision of the Contract submitted by the buyer. It is important that Realtors carefully review and understand the REO Counter-Offer Addendum. Furthermore, professional Realtors will have a real estate attorney review the Counter-Offer Addendum with the buyer to explain and advise the buyer of the provisions of this document as it affects the Contract offer that the buyer presented to the seller. Although some aspects of the Counter-Offer Addendum sound pretty scary, once I have explained the provisions, provided legal counsel, and confirmed that the buyer may be obtaining a property at a very good price, the buyers have invariably signed the Counter-Offer Addendum without hesitation.
Steven R. Greenberg has practiced Real Estate law in Sarasota since 1986 and is a shareholder in the law firm of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A. He is board certified by the Florida Bar in real property law and frequently lectures on matters involving real estate transactions. Steven may be reached at (941) 365-6216 or by calling Linda Witt, Director of Marketing, directly at (941) 586-4412 or by email at REinfo@icardmerrill.com [2].
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