Are you purchasing an REO home in New Jersey?

The procedure of buying bank-owned residential or commercial property in New Jersey has special challenges, consisting of buyer handling certificate of tenancy, the residential or commercial property being strictly "as-is", and minimal appraisal and mortgage contingencies. Discover more in the video or records below!

VIDEO TRANSCRIPT:

Good morning. This is Earl White, Real Estate Attorney. This is a video about 5 things you need to know when purchasing an REO bank owned residential or commercial property. This is when the bank owns the residential or commercial property after a foreclosure has been finished. The process is pretty different compared to buying other kinds of residential or commercial property and other basic sales, so we'll focus on 5 big things.

First, the lawyer review procedure is extremely different. Normally, in New Jersey, when it goes into lawyer review, the buyer's lawyer and seller's attorney negotiate a "rider", which is basically an addendum to the agreement, including in any essential modifications and some popular modifications. There'll be a regular local lawyer 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 local lawyer. In reality, usually there will not even be a lawyer assigned. There'll be some sort of property supervisor, maybe the real estate agent will be handling it closely or another representative, however there's not going to be any attorney for a buyer's lawyer like myself to negotiate with any special changes to the agreement.

There's not going to be another lawyer that I could call and attempt to describe something unique about the offer. Any special modifications are not going to get put in throughout the attorney review procedure. That likewise indicates that there's some traditional defenses I would typically include throughout attorney evaluation that I would not be able to include an REO sale, so something along the lines of appraisal contingency defenses, additional protections for code violations, things relating to back due taxes that might come in the future, things of these natures, additional securities I would include if I might work with another lawyer sort of like myself, they would understand.

With an REO, there's no other attorney and they're not going to be versatile on making any modifications during attorney review. What will take place throughout attorney evaluation though is that you'll sign the regular real estate agent contract and then there'll resemble an addendum, like a bank addendum to the contract with some pretty heavy handed terms beneficial to the bank. The lawyer evaluation is going to be more streamlined, it's more of a take it or leave it. We really have 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 difference is the lawyer evaluation procedure is simply rather various and more stringent with the buyer having less space to make any changes to the preliminary contract or the bank's addendum.

Another crucial thing to be knowledgeable about with the REO sales is that the timeframes are rigorous. The majority of the sales that ... Most of residential sales, the due dates are versatile. They're not "time is of the essence". If a person misses a due date 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 actually a huge offer because the agreements are established that way.

REO deals are not like that. The dates usually are established to be time is of the essence. On the buy side of the offer, you usually have more obligations. You got to do inspections, you do your appraisals, you get your mortgage. It's more on your side, so you require to ensure you're on point with all your dates and all your timeframes because there isn't going to be much flexibility built into the contract.

REOs are also strictly as is sales. I know regular sales, even in the base real estate agent agreement, paragraph 16 states, "Seller represents the sale is as is." All the sales are normally as is, but frequently the purchaser 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 requests for repair work. Once you start decreasing the sales procedure, purchaser has an assessment, something brand-new is discovered and you still may make a demand for repair work or credit or cost reduction. With the bank owned residential or commercial properties, they are really strict as is sales.

The bank is not going to alter the rate. They're not going to start offering credits. To even get that, to even attempt to make that credit, it would be tough since, as I mentioned, there's no attorney for me to even submit an ask for a contract addendum to. It would take the bank 10 days simply to even think about the demand, right? A quarter of the method to the closing it would take them to even just think of and decide on this. That's how institutional it is.

They really are strict as is sales, which is also some danger for you putting time into the deal due to the fact that given that it was an REO, the previous owner got foreclosed on, they might not have actually been taking the finest care of the residential or commercial property considering that they knew they most likely were going to lose it to the bank. There could be physical concerns there. I suggest most REO contracts do offer 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 negotiate credits or repair work.

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

Normally seller duty. In the initial real estate agent contract, it is by default seller responsibility. REOs is the opposite. They're going to press that onto the buyer and there is constantly heavy handed language therein. Again, you can't actually work out 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 also smoke certificate, which is getting carbon monoxide gas detector, fire extinguisher, smoke alarms, et cetera, to the purchaser.

Now, the danger here, and various sale, I would have protection, I could build protections for this, but not for this type of one, I would add something like buyer is ... Say, buyers, "Okay, I'm going to handle duty for CO. Despite the fact that it's not regular, that's how I'm going to get my deal accepted." I would include a protection like if the cost to get the CO to the purchaser is higher than 2,500 dollars, then the purchaser can cancel if the seller will not start the difference. Right? That's not going to fly in REO, that kind of protection. Right? You're going to need to take on the commitment to get the CO. If their expenses come up and they're more than 2,500, who knows what they might be, then if you don't complete the sale, you might lose your deposit. That's a risk that you take doing an REO offer.

The other thing I'm discussing, the key difference here is there's no appraisal contingencies. In the initial real estate agent agreement, the word appraisal isn't even pointed out, right? There's no formal appraisal contingency included in the real estate agent contract, so you need to include that in lawyer review. As I mentioned in point one in this video, you can't actually make much modifications like utilizing attorney review riders for an REO offer. What about the appraisal?

For the appraisal, you're not going to get an appraisal contingency for an REO deal. What it'll boil 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 deal and you can still cancel the deal upon getting a mortgage rejection letter. If it's actually low, you're not on the hook to progress with the deal and comprise the money instantly, so you don't need to make up cash, but it will simply come down to if your mortgage gets authorized or not authorized.

The reason that is not great since, say, you're putting 20% down, right? If it under appraises by, say, $20,000, you may still get approved for the very same quantity of the mortgage and not get rejected, however you just would have less equity in the residential or commercial property. Instead of being a 20% down mortgage on the appraisal value, generally under appraised, possibly now you're approved for the exact same quantity, however it's just 15% down on the appraisal worth. Now because you're not 20% down, you have to start paying PMI or get worse terms.

Again, you're not going to get an official appraisal contingency. You have less equity in the residential or commercial property, less terms, worse mortgage terms. It's not a problem if you can get denied for the mortgage, but you may not get rejected. You still may get approved for your mortgage despite the fact that it under assessed, in which case then you're stuck to worse terms and no method to leave the offer and just type of need to consume the lower appraisal in that situation.

Okay, hope this video was handy. Let me understand in the remarks any questions about REO sales, how those contracts work. If you require help with any property deals, feel free to connect 201-389-8275.

This blog site uses 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 throughout 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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