News

Dealing with distant asset managers with large property inventories and little familiarity with Wisconsin law is clearly frustrating for both Wisconsin brokers involved in REO transactions and the buyers they represent. A successful REO deal requires conquering significant challenges including the REO addendum, verbal negotiation and faulty title work. The REALTOR^® has to find a way to lead the buyer safely through these perils:

1. REO Addendum

The REO purchase contract typically starts on a DRL-mandated offer to purchase form, but the REO asset manager often has a lengthy, hard-to-understand REO addendum that negates contract rights and protections for the buyer. One of the biggest challenges for REALTORS^® is providing brokerage services without engaging in the unlicensed practice of law by interpreting the addendum for the buyer. An agent may share general information or explanations about REO transactions – for instance, that REO addenda are notorious for shifting the risk of the transaction to the buyer – but may not give legal advice. Instead, they can ask the listing agent if the seller is likely to accept any offers from buyers who do not agree to the addendum terms and refer the buyer to legal counsel with specific questions. At the same time, REALTORS^® should not lose sight of the fact that it is unlikely that the buyer will successfully purchase the property if the REO addendum is rejected or countered.

2. Verbal Negotiation

Asset managers often respond verbally to offers and will not provide written counter-offers, a problem because there is no legal binding contract under Wisconsin law until there is a contract signed by both parties; licensees must never mislead buyers into thinking otherwise.

3. Title Troubles

Title problems are the most serious when REO sellers use a title company that is not in Wisconsin and not familiar with Wisconsin law, not to mention local municipal requirements. Some also appear to try to short-cut the process (and save themselves money) by excluding normal coverages (e.g., covenants and restrictions of record) typically found in a traditional owner’s title insurance policy.

These problems are difficult enough for REALTORS^® to work through. Trying to explain all of the REO transaction pitfalls to hopeful buyers and equip them to protect themselves presents an additional challenge.

Some brokers have asked whether there is some type of disclaimer or consumer warning disclosure that they should be giving to alert buyers of the risks involved with REO transactions and help protect the broker from liability. The answer is the new WRA disclosure form, “Information for Buyer of Bank (Foreclosure) Property.” [see sample] This form is intended to educate the buyer by providing some basic background information about REO transactions, warn of some of the risks, explain that agents cannot always address all of the buyer’s questions, and suggest some protective measures that the buyer may want to take. Look for this form on the WRA website and on ZipForm.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.