Watch Out for REO “Addenda”
The typical buyer knows little about real estate contracts and less about how banks that own properties (REOs, Real Estate Owned, in Realtor talk) alter those agreements so they are much less friendly to purchasers.
If you are considering buying a bank-owned home, make sure to talk to your agent about the “addendum,” really a counteroffer, you will receive from the bank. Basically, it gives them all the power and puts you in a vulnerable position.
Before you sign any of these bank documents, it would be in your best interests to have them reviewed by a real estate attorney. The attorney will probably not like many of the clauses in the bank’s package and will advise you to change or remove that language. Problem is, if you do that, the bank will almost surely reject your offer.
As an example, one major bank, in its addendum, says that if the buyer does not cancel the contract after his inspections, “Buyer is obligated to complete the purchase or forfeit their earnest money deposit.” Aside from poor grammar, this stipulation is not found in standard real estate contracts used in this area. I would never sign that, but many buyers do because they feel they have no choice.
So, be forewarned, if you get an accepted offer on property where a bank is involved, including short sales, you will be rolling the dice that you do not suffer serious financial damage.