Real Estate Owned (“REO”). The abbreviation “REO” means “real estate owned.”  In banker-speak, it means that the lender has taken the home back from the defaulting borrower – voluntarily or involuntarily – and must now try to sell it to recover the unpaid balance on the loan.

The Bank Addendum. It has been my experience that when banks sell their REO properties, they do so in the following manner: Upon receiving a purchase offer, they counter it with an “addendum.”  This document is usually several pages in length, replacing many of the customary terms of the buyer’s offer.  While there may be some differences among these bank forms, the one characteristic they all have in common is their attempt to reinforce the notion that the property is being sold “AS-IS.”

Having reviewed a number of bank addendums (technically “addenda”) over the last several months, I have concluded that if we read them at another time, say three, four or five years ago, we would likely have been offended that anyone would think us foolish enough to agree to such harsh terms.  But this is today – banks have been taking properties back in droves.  These properties must be placed back on the market quickly, and with the least amount of expense.  In an effort to reduce future liability, banks have stretched the concept of an “AS-IS sale” to the breaking point.  Why?  Because they can. Even though it is a buyer’s market in Oregon and elsewhere, banks are selling some of their REOs at very attractive prices.  As a result, buyers are generally willing to accept the AS-IS terms in the bank’s addenda.

But Is It Legal? To me, this approach is of dubious legality.  Saying so does not make something so.  While I cannot presume to know the thinking of those who draft these documents, I suspect some of the AS-IS language is inserted more for psychological affect than substantive effect. As far as I know they have yet to be legally tested in Oregon.  Perhaps that means they are working….

Here are a few of the provisions I’ve seen in bank addenda that buyers (and the real estate agents representing them) should be aware of: Continue reading “Bank REOs And Property Disclosure”