LEGAL LINES ‐ BEWARE OF LENDER DOCUMENT FINE PRINT!

Over half of all transactions closed today fall into the bank‐owned or bank‐approved short sale category. In these cases, many offers to purchase are either written on contract forms provided by a lender or modified by an addendum provided by a lender.

In virtually all these cases, the provisions of these contracts transfer much of the transaction risk from the seller to the buyer. It is imperative that practitioners and buyers read and understand every word in these documents as their provisions are typically quite different from normal accepted practices in our market.

Here are some key things to watch for:

Transaction expenses normally paid by the seller are often transferred to the buyer. This can include almost anything, such as title insurance premiums, transfer taxes, tax and other pro‐rations, de‐winterizing, repairs, credits, etc.

When title insurance is provided by the seller, the policies specified frequently include so many exceptions that they provide little or no protection to the buyer. In these cases or when no title insurance of any kind is provided by the seller, we highly recommend that buyers acquire their own title policy from a reputable local agency.

Sometimes there are additional fees charged to the buyer.

The risk of loss is frequently placed on the buyer. This means that if the house is vandalized
or otherwise damaged prior to closing, the buyer has no right to rescind and must close anyway or lose his deposit. Small earnest money deposits are recommended in these cases.

Some agreements do not create a tangible interest in the property for the buyer. Some allow the seller or lender to continue to solicit additional offers from other buyers and replace an existing offer with another that is deemed more desirable for the seller.

Buyers should be counseled to weigh the benefit of “getting a good deal” on a distressed property against the additional cost and risk associated with the acquisition of a bank owned or short sale property. These types of properties can represent great opportunities for some buyers, but only if they understand the risks and additional costs in advance.