Often times, when I’m working on contracts with another party (agent or buyer), there are some misunderstandings as to how the contract procedure goes. Below are top contract blunders. Of course, mistakes happen, but unfortunately, they do delay the contract process. This isn’t about pointing out someone’s mistakes, but merely trying to educate so we can make the process cleaner and smoother for all.
- Getting the buyer name correct. Yes, we have received contracts with buyers names misspelled. This does create a problem going forward because the seller’s side will create the transfer documents from the contract information. If it’s not correct, it causes more time in correcting the error than if we just made the correction upfront.
- Ensuring you know how the buyer wants to take title. If they make their offers as an individual, it will be that name on the accepted contract. Some bank/government entities do not allow for name changes once accepted. Please make sure you know upfront if the buyer wants to purchase as a company. If they are purchasing as a company, it needs to be an existing company. They will need to show the articles of incorporation, so the seller knows who is legally authorized to sign for the company. If the buyer’s company is not set up yet prior to making an offer, they can transfer the property into their company name after closing.
- How does the buyer intend to use the property? Owner occupant or investor? Second home? Rental home? These do not seem like they should be an issue, but they can be. For some selling entities, they ask up front. They may even have owner-occupied bidding periods just for a buyer that intends to use the property as their primary home. Not purchasing in the right entity can cause serious issues for the buyer later as some sellers have fines and or jail terms if convicted. It is considered fraud.
- Whatever terms are agreed to in the offer process is what should be in the contract and match the seller’s addendums. If you change the information, the seller will send the contract back for corrections.
- If the buyer is purchasing with cash, a proof of funds letter is needed. These need to be dated to within 30 days of the accepted offer date. If you send in anything older, the seller will only send the contract back. If purchasing using a loan, make sure that it too is dated to within 30 days but also notates the type of loan the buyer is intending on applying for. In some cases, a home may not qualify for specific loans types due to repairs. Sellers will not want to waste time in contract only to have a buyer denied for that loan type.
- If purchasing via a loan, please make sure the loan officer (LO) knows the condition of the home and that it is a foreclosure. It can make a difference in which loan type they look to qualify the buyer with.
- Per Diem’s are typical with many REO contracts. If the buyer does not close by the closing date on the contract and there is no reason for delay approved by the seller, they will begin assessing per diem charges beginning the next day until closing. Many times, the seller will agree to extend without a per diem. But do not be surprised if they do look to charge the buyer.
- Read every page. I can not tell you how many times something comes up and it was in the contract. The buyer or their agent just did not read what they signed. Please read it. Make sure every space that needs to be initialed is done. Every line that needs to be signed is done. Countless contracts go back because the buyer or their agent missed initials, filling in something or signing.
- No cross-outs or whiteouts. They will not allow you to change the verbiage, especially in the seller’s addendum.
- Attorney review. This one always seems to stump the buyer’s side of the transaction. Most bank/government entities are outside the state in which you are doing business in. For New Jersey, we have a 3-day attorney review period on all residential contracts. REO sellers will recognize this period, but they still do not allow changes to the contract.
- Home Inspections. Another biggie. The properties are typically sold as is. Some REO sellers will be able to turn on utilities for a home inspection, but sometimes they will not for various reasons. If the utilities can not be turned on, the buyer will only be able to inspect that which is available to be inspected. The seller will not extend a home inspection time frame because the buyer wants the electric or some other utility on.
This blog is based on the opinion and expertise of the blogger. Ms. Lopez is not an attorney. This blog post should not be considered legal advice. If you need legal advice, please seek legal counsel.