Beware of Real Estate Contracts

Believe it or not, this is a busy time of the year for real estate agents. Both investors and home buyers are buying in December, each for different reasons.

For investors, there are certain tax breaks for buying by the end of the year, and for home buyers, it is a great time to move into a new home if the kids have to change schools. The Christmas break helps them transition into the new school.

I am currently representing a client who is buying property that has been foreclosed on by the bank. The contract that the bank is requiring my client to sign in order to buy the property from them is hideous. In fact, it might even be punitive to the buyer.

So this is my warning to anyone who is buying a foreclosure from the bank: When they send you an addendum to your offer, don't just sign it and think that it is a boiler plate form. It is full of language that is so one sided in favor of the bank, that I am not even sure that it is legal. 

I know that a team of attorneys got together and wrote the addendum to make sure that once the buyer signs the contract, that the buyer will not back out.  The contract that real estate agents normally use in the transaction is a level playing field for both the buyer and the seller. 

Unfortunately, this is not so in the bank transactions. It is imperative that your agent explains in detail, what the addendum means. For example, in this transaction, the bank will not use "binding agreement date" as the beginning of the due diligence period or the beginning of the financing contingency period. The bank uses "verbal acceptance," which is an arbitrary date. The bank will not put anything in writing as to confirm the "verbal acceptance" date, because that's what verbal acceptance is: Verbal! So the agent representing the bank just tells you that you have verbal acceptance.

The problem with this is: How is that enforceable? The answer is: It isn't! But the banks addendum goes on to stipulate that if you don't get your financing or complete your due diligence within their arbitrary date, then you lose your earnest money, which in this case is $100,000.

Another condition in the contract is this: All dates in the agreement are absolute, so if the closing does not take place on the exact date that is in the contract, then the buyer will lose his earnest money. Now I ask you: What if it snows on the date of the closing, what if the bank representative doesn't show up, what if the closing attorney is sick and can't make it? 

The way this addendum is written, then the buyer loses his earnest money. It is a complete joke the way the bank attorneys are treating the buyers. I see a lawsuit on the horizon. I asked the bank's agent why anyone would sign this addendum to the contract and he told me if they want to purchase the property, they have to sign it. He claims that it is an FDIC requirement, but I doubt that.  

I added multiple special stipulations to counter the punitive language in their addendum to protect my client, but the bank said heck no – get the special stipulations out of the addendum or no deal. You are probably thinking right about now: Is this property really worth buying? The answer is yes, it is. 

My client is getting the property for a tremendous price and he will be very happy once we get through this mess.

The take away from this blog will hopefully be this: Contracts are highly serious and potentially harmful. When someone tells me that they didn't read the contract because their agent said it was boiler plate or "we always use this contract in this industry" or they trusted their agent: I say that's nuts! 

Always read the contract and ask questions – know what you are agreeing to and make sure that you have a contract schedule. A schedule helps you keep up with the dates in the contract: earnest money deposit date, attorney review date, due diligence dates, inspection dates, appraisal date, financing dates, termite bond date, walk through and closing date. 

You should have at least eight dates on your schedule. It may be tempting to rely on your agent, but that may not work out well for you, so keep a calendar with the dates circled in red.

I am always looking for good stories for my blog here and other places. I would love to hear your real estate stories. 

Rebecca Currie
Elite Real Estate Properties   
404-372-4648
RebeccaCurrie@bellsouth.net