I advise buyers to expect that the bank addenda that are sent when the bank supposedly "accepts" the price on a short sale, on an REO and in the auctions are loaded with anti-consumer clauses that strip away many of the buyers rights that the CAR contract is designed to protect.

The CAR contract, I believe was created to be fairly even handed to both buyers and sellers in the "small print" sections. Bank addenda, on the other hand are written to supersede many of the rights of inspection and contingencies that a prudent, careful buyer usually wants to have.

Further, the addenda, often give the bank extended rights ( often unlimited rights )to cancel the sale for any or no reason all the way up to the nominated close of escrow, with no compensation to the buyer whatsoever for lost time, funds spent on appraisal or inspections, repairs, or any other expense of the transaction . The buyers only compensation in case of seller default is return of the buyers own good faith deposit.

While one would think that banks would not want to cancel sales, I can envision circumstances in which they would. especially since many of these circumstances are identified in the bank addenda:

Bank may cancel sale AT ANY TIME 1. ) If Mortgage insurance company disagrees with the lender, 2. ) If lending committee disapproves, If another (partnering investor) disapproves. 3. If the previous servicer disapproves the sale. 4.) If the previous (defaulted owner ) redeems the property. 5. ) If the bank is unable to transfer marketable title

Additional reasons why I suspect the bank may cancel the executed contract: 6.) If they believe they have or will get a higher offer from someone else. 7. ) If they change their minds and decide the property is worth more than they have agreed to sell it for. 8. ) the property is pulled from the listing agent and sent to a bulk sale or to an auction. AND 9. Any or no reason whatsoever.

Remember, the bank does not have to give any reason at all. They can just cancel all the way up to the minute the sale records. The buyer, meanwhile risks losing any funds spent on inspections, appraisals, turning on utilities for inspection, repairs made during escrow, moving truck deposits.

Conversely, if a buyer needs to extend the contract for any reason, the buyer must pay $100 (or more ) per diem extension fee paid in advance to the bank (non - refundable , of course )

The seller ( bank ) may extend the contract up to 120 days without canceling if it needs more time. during that 120 day extension period, the buyer is not compensated in any way for time lost, moving or storage expense, loss of interest rate lock, loan document redrawing fees or any other buyer expenses. The buyer cannot cancel for cause and be assured of a full return of their deposit either, because the banks right to extend is in the executed contract addendum. Theoretically, under such an addendum, a bank could keep a buyers deposit hostage for 150 days while they waited for a higher offer.

While I paint a nightmare scenario, that I admit is unlikely in most cases, the contract wording is what it is. The buyer nightmare scenario, while unlikely, is also quite possible because of the bank addendum wording states it to be so.

Yet another reason to suspect that something that seems to be to good to be true, often is.

The nightmare scenario I describe is more likely to occur to a buyer who "lucks into" a distress sale where the property is "sold" (with a bank addendum escape loopholes ) for a 20% discount from market value than if it is "sold" at a mere 5% discount from market value.

I would bet money that the escape loophole would be exercised if the bank discovered that it had agreed to sell for half price.

Mon Jan 28 2008, 15:57

A friend of mine got all excited when he heard an informercial about a get rich quick idea to develop a service to sell notes. I thought that if a person as intelligent as he is will be excited about something like that (a bit of a doubtful idea, but i have not done extensive research, so I can't say whether it works or not), I wonder how many people are jumping into real estate short sales, foreclosures, etc and not getting fully informed. .

So I just want to bring this up to remind consumers to be mindful.

Mon Jan 28 2008, 10:35