REO Contracts

by Michael Culliton
(Minnesota)

REO Contract - Not Our Normal Deal

Every agent has their opinion on REO's but the bottom-line is they are here to stay for a while, and will be the majority of properties on the market in every market around the US.

Understanding the basics of a REO transaction and how the banks work are two things EVERY agent should be working on as there is NO WAY to represent your everyday buyer like an agent should if they do not understand the contracts or thinking of the sellers they are dealing with.

First - Banks are in the paper business. (You can obviously tell this from the 40+ page contracts and miscellaneous forms which they all require - their own versions of.. but thats a different kind of paper!) Seriously though, a bank is a financial institution licensed by the government (there's our first problem).

Its primary activities include providing financial services to customers while enriching its investors. This license generally is to be a receiver of deposits with most of their ancillary services, outsourced to third parties often for regulatory reasons and normally just to another financial institutions and/or investment groups etc..

Note, none of the above states anything about selling real estate - because its not a part of a bank's business model and not a piece they would like to include either, as selling real estate is inverse of the general financial institution's business models. In banking, asset and liability management is the practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank as efficiently as possible to ensure the enrichment of its investors (without investment they have no funds.. banks need investors not customers) A customer is a liability for a bank. This can also be seen in the insurance business.


Now understanding how the banks work may help make sense of their seemingly senseless thinking in respect to REO contract negotiations, procedures, and escrow.

For the most part, there is no seller to rationalize with and everything from the listing of a REO property to the funding is done through a system or some type of checklist with a group of robotic, under-paid and over-worked people who do not care about a buyer or you.

The REO contracts NEED to be FULLY READ and REVIEWED. I cannot believe how many agents and their buyers are signing every last right away in respect to a real estate transaction without reading anything other than the purchase price and close date. A REO contract will ALWAYS be in favor the seller and hold the seller harmless for ALL issues which come up.

AS-IS means, as is.. there is nothing more to that.
If you are reading the REO contract and think to yourself that it does not make sense and seems like a foreign language, CONSULT A REAL ESTATE ATTORNEY. DO NOT advise your helpless buyers that the banks are going to be somehow helpful. With a REO you are on your own.

This article could go on forever. All I really want to say is get educated on REO and understand as any agent should, what you are getting your buyers into before they sign the contracts.

Michael Culliton | REMAX Real Estate Properties Network | 763-218-7906