SUBJECT: REO Transaction Best Practices – Seller/Asset Manager

Below is a list of tips, whichare best addressed in the beginning stages of an REO sale, which will help to resolve issues common to REO transactions. We hope that this information will prove useful in everyone’s efforts in saving both time and money.

  • Specify in the Seller’s Addendum exactly who will conduct or coordinate the closing. Also specify who will issue the title commitment/Owner’s Policy. (Note: in “buyer’s choice” states, the seller may only specify that the buyer must also coordinate with your chosen closing office).
  • Specify in the Seller’s Addendum exactly what closing fees both the buyer and the seller are responsible for. There are many instances where the buyer will contend that the seller is responsible for all closing costs due to the fact that the Purchase Agreement(s) and Addendum(s) do not state that the buyer must also pay their portion of fees. Most of the purchase agreements state “normal and customary”, in which case agents and buyers alike will argue that sellers pay everything in their area. Our recommendation is that buyers and sellers split the closing costs, with the seller paying for the Owner’s Policy and the buyer(s) being responsible for the Mortgage Policy (if applicable).
  • Transfer Tax: While it is normal and customary for sellers to cover this expense, one way to reduce costs to the seller is to make this a buyer’s responsibility.
  • Final Water Readings: The best practice is to have your listing agent order a final reading and turn water off as soon as the listing is given to them. If this is not a viable option, specify in the Seller’s Addendum who is responsible for obtaining the final readings and how the final bill will be handled. Indicate whether there will be a water escrow held by the closing company or by the agent, or whether there will be no escrow but an agreement that the listing agent will pay the final bill (and later be reimbursed by the seller, etc).
  • Contract Close Date Timelines:
  • Cash: 30 days from the date that the seller approves the final contract.
  • Mortgage: 45 days (at least) from the date the seller approves the final contract. Note: On Government loans (FHA, VA), this will most often require 60 or more days.
  • Ensure that all taxes are paid current to within 1 year of the current taxing period.
  • Specify in the Seller’s Addendum how taxes are to he prorated.
  • It is in the sellers best interest to see that the taxes are prorated as if they have been paid in advance, on a due date basis (for instance, if taxes are due on July 1st and December 1st of each year). This method of tax proration will result in a credit to the seller.
  • Upon the delivery of the Contract of Sale to the closing/coordinating company, please provide contact information for your Asset Manager/Closer at your office, contact information for the listing agent, and any special deed preparation requirements (as needed) by your office.