Beware Of Bank 'Steamrolling' Tactics When Buying REOs

Maine attorney Robert E. Danielson writes in The Portland Press Herald reports:

• With a significant number of "repos" – or real estate being offered for sale by lenders who have recently foreclosed – potential buyers need to be aware of the risks inherent in purchasing such properties.

• In addition to the typical due-diligence items, such as title, financing and inspection, repos are also subject to additional issues, such as whether the foreclosure was conducted properly; possession issues and third-party liens; warranty of title or lack thereof, and a seller-dictated process that is clearly one-sided.

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• Repo sellers who acquired title involuntarily (i.e., through foreclosure or by a deed in lieu of foreclosure) are usually unwilling to convey it by warranty deed since they do not wish to warrant title to a new buyer. Therefore, such a seller may make the sale conditional on the buyer's accepting a quitclaim or release deed.

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• In addition to the conveyance issues noted above, sellers frequently impose conditions in the purchase-and-sale agreement that severely limit the buyer's right to terminate the contract.

• Repo sellers often require that the buyer use their form contract, which allows the seller to determine the type of title to be delivered (see above) and limits the scope of services the seller must perform.

• Furthermore, many form contracts require that the buyer use the seller's title company to examine the title records and to accept the title insurance proffered by the company. It may seem obvious that this is not a good practice for the buyer, but with the pressure of the sale, the lure of a good price and the opportunity to close quickly, many buyers will be swayed to commit to a contract before realizing that they have few or no options if a title issue arises.

For the story, see Be prepared for the risks of 'repo' buy.