A Cautionary Tale for REO Buyers

 Debbi Conrad  |    March 03, 2011

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¬ģ 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¬ģ 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 ‚ÄĒ for instance, that REO addenda are notorious for shifting the risk of the transaction to the buyer ‚ÄĒ 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¬ģ 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, such as covenants and restrictions of record, typically found in a traditional owner’s title insurance policy.

These problems are difficult enough for REALTORS¬ģ 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.

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

 Editor’s note: The DRL became the DSPS in 2011. Information above may not be current.

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