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REO or real estate owned is a term that refers to a lender property which did not sell successfully at a foreclosure auction. Once a REO is placed on the MLS, (Multiple Listing Service), multiple offer situations are not uncommon. Because today’s market forces investors to act fast, it is imperative you understand the REO bank addendum and more importantly, know what you are signing.

The Real Estate Purchase Addendum

When purchasing a Fannie Mae REO property, you will be asked to sign a Real Estate Purchase Addendum. This addendum supersedes the FL state “As Is” Residential Contract. There are differences between the state contract and the bank addendum, so read it carefully and in its entirety before signing. If you do not understand any portion of the contract, seek the assistance of a real estate attorney.

The offer

An executed contract means the contract has been completed and signed by all parties.  In the FL “As Is” Residential Contract for Sale and Purchase, all dates begin at the time of executed contract, unless stated otherwise.

In the Fannie Mae Real Estate Purchase Addendum, all dates start to run at the date of acknowledgement, which means the date of verbal acceptance. This is the date the offer status changes from listed to offer accepted. There are many dates in the bank addendum that are calculated from the acknowledgement date.

Inspections

In a standard FL As Is Residential Contract for Sale and Purchase, the buyer has the right to terminate the contract based on the results of an inspection. It can be something very minute, yet the buyer still has the right to cancel within the designated time frame.

Fannie Mae properties are sold as is with the right to inspect, yet buyers can not terminate the contract upon receipt of a troubling inspection report and expect to get their earnest money deposit refunded. If the purchaser is looking to terminate the contract based on the inspection results, the seller needs to be notified of the items they disapprove. In addition, a copy of the inspection report must be submitted. The seller is not obligated to make repairs or replacements, but if they elect not to repair the items, the purchaser may now cancel the agreement and receive all earnest money deposited.

Financing

According to the Fannie Mae Real Estate Purchase Addendum,  the purchasers loan application timeline starts from the date of acknowledgement. Furthermore, the seller has the right to terminate the agreement if the purchaser changes his financing or choice of lender.

Closing costs

Fannie Mae is a congressional chartered corporation, therefore they are exempt from paying real estate transfer taxes such as doc stamps, regardless of local practice. Any real estate transfer taxes due on the sale as a result of the conveyance of the property are the responsibility of the buyer. These terms, as well as any other bank addendum terms, can not be countered.

An example

Let’s say the contract states you have a 10 day financing contingency.  The bank addendum says the timeline is a 5 day financing contingency but you, your real estate agent, and the lender do not take notice of it. On day 7 your bank notifies you that they can not approve the loan, so you terminate the contract based on the financing contingency. Without even realizing it, you have forfeited your escrow deposit. The bank addendum stated it was 5 days, yet you acknowledged it 7 days ago. The bank addendum supersedes the state contract and all addendum so the bank addendum prevails.

Conclusion

Although this post reviews the Fannie Mae Real Estate Purchase Addendum, most REO properties will have an addendum of their own with slight variations. Many buyers feel that since the original contract was accepted, those are the terms that count. This is incorrect. The bank addendum over rides the state contract and all other addendum, so do not just skim through it and sign. Failure to review and understand the addendum could lead to entrapment or financial set backs, so carefully read the bank addendum in its entirety and understand what you are signing.

For investor tips on how to submit an offer in a competitive market, visit my post In It to Win It.