Are you buying an REO home in New Jersey?

The procedure of purchasing bank-owned residential or commercial property in New Jersey has special obstacles, consisting of buyer handling certificate of occupancy, the residential or commercial property being strictly "as-is", and limited appraisal and mortgage contingencies. Learn more in the video or records listed below!

VIDEO TRANSCRIPT:

Good morning. This is Earl White, Real Estate Attorney. This is a video about 5 things you need to understand when buying an REO bank owned residential or commercial property. This is when the bank owns the residential or commercial property after a foreclosure has actually been completed. The process is quite different compared to buying other types of residential or commercial property and other standard sales, so we'll focus on five huge things.

First, the attorney evaluation process is very various. Normally, in New Jersey, once it enters into attorney evaluation, the buyer's attorney and seller's lawyer work out a "rider", which is basically an addendum to the contract, adding in any essential changes and some customary changes. There'll be a normal local attorney representing the purchaser and the seller. With an REO residential or commercial property, bank owned residential or commercial property, the bank, the seller, is not going to have a regional lawyer. In truth, generally there will not even be an attorney assigned. There'll be some type of asset manager, perhaps the real estate agent will be handling it closely or another agent, but there's not going to be any lawyer for a purchaser's lawyer like myself to work out with any unique changes to the contract.

There's not going to be another lawyer that I might call and attempt to discuss something special about the offer. Any special personalizations are not going to get put in during the attorney evaluation procedure. That also implies that there's some traditional defenses I would usually include throughout attorney review that I would not have the ability to include in an REO sale, so something along the lines of appraisal contingency securities, extra protections for code violations, things associating with back due taxes that might be available in the future, things of these natures, additional protections I would include if I could deal with another lawyer sort of like myself, they would understand.

With an REO, there's no other lawyer and they're not going to be versatile on making any modifications during lawyer evaluation. What will happen during lawyer evaluation though is that you'll sign the typical real estate agent agreement and after that there'll be like an addendum, like a bank addendum to the agreement with some pretty heavy handed terms beneficial to the bank. The attorney evaluation is going to be more streamlined, it's more of a take it or leave it. We truly need to push for something, we can, however it's going to be more take it or leave it on the bank's terms in lawyer review. That's one distinction is the attorney evaluation process is simply rather various and more stringent with the buyer having less space to make any changes to the initial agreement or the bank's addendum.

Another important thing to be mindful of with the REO sales is that the timeframes are strict. Most of the sales that ... Most of property sales, the due dates are flexible. They're not "time is of the essence". If a person misses a deadline by a day, you send your inspection request a day late or your mortgage commitment's a day late or you pass the closing date a week, not really a huge offer because the agreements are established that method.

REO offers are not like that. The dates often are established to be time is of the essence. On the buy side of the deal, you practically always have more obligations. You got to do evaluations, you do your appraisals, you get your mortgage. It's more in your corner, so you need to ensure you're on point with all your dates and all your timeframes due to the fact that there isn't going to be much versatility developed into the agreement.

REOs are also strictly as is sales. I understand routine sales, even in the base real estate agent contract, paragraph 16 states, "Seller represents the sale is as is." All the sales are usually as is, however usually the buyer will make the point that, oh, we're actually going to treat this as an as is sale. We're not going to make any ask for repairs. Once you start going down the sales process, purchaser has an inspection, something brand-new is found and you still might make an ask for repair work or credit or rate deduction. With the bank owned residential or commercial properties, they are truly stringent as is sales.

The bank is not going to alter the price. They're not going to begin giving credits. To even get that, to even try to make that credit, it would be challenging since, as I discussed, there's no lawyer for me to even submit an ask for an agreement addendum to. It would take the bank 10 days simply to even consider the demand, right? A quarter of the method to the closing it would take them to even just believe about and make a choice on this. That's how institutional it is.

They really are stringent as is sales, which is likewise some danger for you putting time into the deal due to the fact that considered that it was an REO, the prior owner got foreclosed on, they may not have actually been taking the best care of the residential or commercial property given that they knew they probably were going to lose it to the bank. There could be physical concerns there. I indicate most REO contracts do provide you still a right to inspect and you still have a right to cancel and get your deposit back. Again, the bank is going to treat it as a real as is sale and is not going to work out credits or repair work.

Another big difference with these REOs sales is that the purchaser manages the certificate of tenancy and smoke certificate. Most sales, 99, if not 99.9% of the time, seller generally has the obligation to get the certificate of occupancy, which is when a city inspector, you call the city billing department, they send out inspector out to the residential or commercial property. They look for code offenses, habitability issues, anything like that. They release a that says the residential or commercial property adhere to a zoning code or something like that.

Normally seller duty. In the preliminary real estate agent contract, it is by default seller responsibility. REOs is the opposite. They're going to push that onto the purchaser and there is always heavy handed language in there. Again, you can't really negotiate these things that well. If you're going to do the REO sale, there's threats here. They're either going to shift the commitment to the buyer to spend for all the costs for the certificate occupancy and likewise smoke certificate, which is getting carbon monoxide detector, fire extinguisher, smoke alarms, et cetera, to the purchaser.

Now, the risk here, and different sale, I would have protection, I could develop protections for this, however not for this kind of one, I would include something like buyer is ... Say, purchasers, "Okay, I'm going to take on responsibility for CO. Although it's not regular, that's how I'm going to get my offer accepted." I would add a security like if the cost to get the CO to the purchaser is higher than 2,500 dollars, then the buyer can cancel if the seller will not begin the distinction. Right? That's not going to fly in REO, that type of protection. Right? You're going to need to handle the responsibility to get the CO. If their expenses come up and they're more than 2,500, who understands what they could be, then if you do not complete the sale, you might lose your deposit. That's a risk that you take doing an REO deal.

The other thing I'm pointing out, the essential difference here exists's no appraisal contingencies. In the initial real estate agent contract, the word appraisal isn't even mentioned, right? There's no formal appraisal contingency consisted of in the real estate agent agreement, so you need to include that in attorney evaluation. As I discussed in point one in this video, you can't actually make much adjustments like using attorney evaluation riders for an REO deal. What about the appraisal?

For the appraisal, you're not going to get an appraisal contingency for an REO deal. What it'll come down to concerning the appraisal is that if the residential or commercial property assesses so low that your mortgage gets rejected, then you can still cancel the offer and you can still cancel the deal upon getting a mortgage denial letter. If it's truly low, you're not on the hook to move forward with the offer and make up the cash automatically, so you do not have to make up cash, however it will just boil down to if your mortgage gets authorized or not authorized.

The reason that is not excellent due to the fact that, say, you're putting 20% down, right? If it under appraises by, state, $20,000, you may still get authorized for the very same amount of the mortgage and not get denied, but you simply would have less equity in the residential or commercial property. Instead of being a 20% down mortgage on the appraisal worth, basically under appraised, possibly now you're approved for the same quantity, however it's just 15% down on the appraisal value. Now due to the fact that you're not 20% down, you need to start paying PMI or worsen terms.

Again, you're not going to get an official appraisal contingency. You have less equity in the residential or commercial property, less terms, even worse mortgage terms. It's not an issue if you can get denied for the mortgage, but you may not get denied. You still may get authorized for your mortgage although it under assessed, in which case then you're stuck to even worse terms and no way to leave the deal and simply kind of have to consume the lower appraisal because scenario.

Okay, hope this video was helpful. Let me know in the comments any concerns about REO sales, how those agreements work. If you require help with any property deals, feel free to connect 201-389-8275.

This blog applies to purchasing a an REO bank-owned home in Newark, Jersey City, Hoboken, Paterson, Elizabeth, Union City, West New York City, Bayonne, East Orange, West Orange, North Bergen, Clifton, Bloomfield, New Brunswick, Atlantic City, and across Bergen County, Essex County, Hudson Couny, Union County, Morris County, Somerset County, Atlantic County, Monmouth County, Middlesex County, Ocean County, and Passaic County.

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