One of the areas which my law firm, Topkins & Bevans, with offices in Boston, Waltham and Braintree, Massachusetts, has recently become extremely active is real estate owned by banks and other financial institutions after foreclosure (generally known as “REOS”). REO purchases are not for the meek, and I thought I would share with the Active Rain community some of the “issues” which almost always obtain when purchasing an REO:

     1. REO Properties are always sold “as-is”. This means that you may be able to get limited financial concessions for problems at, or around the dwelling, but virtually “never” have an REO Seller, which will fix or restore problems in the dwelling.

     2. The closing date on the REO sales agreement is rarely, if ever, the date of the actual closing. There are generally too many title issues which are lurking in the property’s history to permit an orderly closing. This can be especially troublesome for people buying an REO as their intended residence. We have seen many instances where REO Buyers are “homeless” because they have made plans to leave their prior residence for the REO property only to experience delays. Be prepared for not a lot of “human kindness” from the REO Seller even though your client is in a desperate situation.

     3. Most REO properties are handled by servicers for the investors. Accordingly, there is a rather rigid “chain of comman” which muct be adhered to and can rarely be side-stepped. This means that delay in reaching decisions is almost always a “given” and you, and your client, will be disadvanatged.

     4. Foreclosure sales are the culmination of a generally lengthy process, with many areas where terminable error can sneak in. The Internal revenue Service and state Department of Revenue must be given appropriate Notice. The foreclosure documents must be drafted correctly, or confirmatory documents will be required. Any such documents need to go up the “chain of command” and that can occasion delays. The Buyer’s attorney, or title company, will be expected to certify title. This is hard to do if the foreclosure has “flaws”. The investor Seller is rather picky about the flaws in the title. Once the investor signs off, it does not want to deal with the property again. This can definitely cause delays.

     5. If a closing cannot be scheduled in the reasonably near future, the Seller may pull the property off the market even though the Buyer wants to complete the purchase. The Seller would rather wait until the title issues are all resolved. The Seller really doesn’t care to whom the property is sold. The Seller just wants to know that once the deal is done, it is “done”, so that need for closure often drives the bus.

     6. There are some continuing issues with outstanding liens on the proeprty, most notably in the payment of overdue condominium common area fees. If the outstanding fees are in excess of certain prescribed numbers, the Seller will not permit that a HUD-1 Settlement Statement to include payments with respect to that problem. Don’t ask me why, but it can cause problems.

    7. An Owner’s Policy of Title Insurance is an absolute “must” for REO purchases. There are just too many areas where a slip-up will cause problems down the road. Some of our REO Sellers will ask our firm to write the Owner’s Policy and pay for same as their closing cost. Others are not as generous. In any event, make sure you Buyer has a Policy. That is among the best advice you can give to your REO purchaser.