resnWriting an Acceptable REO Offer.pptx

3 Hours C.E.
CE 5056002-RE (Classroom)
3 Hours Contracts
Copyright 2021 Real Estate School of Nevada, Inc. All Rights Reserved.

“Writing an Acceptable REO Offer”
Housekeeping
 No phones or texting during the class.
 Please make sure that you sign in.
 Restrooms
 Direct attention to instructor.
 Refrain from distracting activities.
 Breaks
 Instructor Evaluations
 Attendance sign out
 Certificates of Completion

Course Objectives:
 The purpose of this course is to address the need for real estate agents to
understand how to write proper REO offers. Real estate professionals who
complete this course will be better able to serve their clients and
customers and will be more likely to succeed in getting their REO purchase
agreements accepted.
 To meet the educational requirements for the Nevada Real Estate
Continuing Education Courses for license renewal.
 To provide the student with the knowledge that is necessary to best
represent foreclosure buyers

Course Content
This is a 3-hour course divided
into three sections:
 What's Involved? – 10 minutes
 The Research – 20 minutes
 Nevada Law Summary on Offers – 20 minutes
 The Purchase Agreement – 30 minutes
 Clauses, Acceptance, Terms - 20 minutes
 The Offer Package - 20 minutes
 HUD Offers - 60 minutes

Materials
 Web site definitions, these slides
Certification Requirements
 Real Estate School of Nevada will issue a Certificate of Completion to the
student after successfully completing the Real Estate Continuing Education
Course.
Disclosure
 This information is provided for educational purposes only and is not a legal
opinion. Real Estate School of Nevada does not consider items in this course to
be opinions of Real Estate School of Nevada and suggests a legal attorney be
consulted for professional advice.
Course Content

Bank Owned (REO) Properties:
 REO (Real Estate Owned) properties are properties owned by the mortgage
company (lender, bank, mortgagor) after an unsuccessful foreclosure,
trustee sale, etc.

What’s involved in purchasing REO properties?
 Understanding the process could help buyers acquire properties at a
relatively lower price.
 The costs of foreclosure to lenders to sell their REO properties can add
up. During the process of title transfer from the previous homeowner
to the lenders, there could be cost associated with:
 Evictions
 Liens on the property
 Insurance
 Property taxes
 In general, since the bank representatives have obviously not lived in
these properties, banks are exempt from providing many
disclosures, that are normally mandatory in a regular sale.

 Buyers should expect the following when purchasing REO Properties:
 Negotiation - Since it costs the bank more to sell their REO properties, there is
very little negotiating room.
 Banks will try to get the best and highest offers.
 It is to their interest not to “dump” properties to the market.
 Most REO properties are sold recently with multiple offers, recently.
 This varies from region to region.
 REO properties are normally sold in its "As-Is" condition.
 There are only few mandatory disclosures that the banks are required to
provide.
 Buyers should be prepared to do their own inspections to their
satisfaction.

 Buyers must be pre-approved prior to making offers.
 Some properties may not qualify for a new loan if their conditions are
poor and non-livable. (This is especially important for FHA/VA
approved buyers).
 The agent should be able to clearly explain the REO purchasing
process.
 Cost of renovation should be taken into consideration.
 In preparation to making an offer on a REO property, buyers and the
selling agent should be prepared to obtain an Offer Instruction and/or
an Offer Checklist from the listing agent.
 A complete offer package can reduce the review time and therefore
speedup the approval/acceptance time from the bank.

Research before writing!
 Lots of savvy home buyers want to hit the jackpot
and buy that REO foreclosed home, many of which are often
underpriced.
 When banks price REOs under the comparable sales, multiple offers
are often the response. This means the buyer could be up against
stiff competition for that bank-owned home.
 It's not unusual for some REO homes in Nevada to receive 15 or 20
offers.
 Sometimes the bank will throw out all but two offers and then ask
the selected buyers to resubmit what is called "Highest and Final"
offer.
 Sometimes the bank simply accepts the best offer at inception.

Tips on Writing Your Offer
 If you're wondering how you can make your offer shine above all
the rest and be the winning offer, here are a few tips to help you
select the right price and terms:
 1. Get the Property History
 If possible, find out the bank's purchase price on the Trustee's
Deed or Sheriff's Deed. Generally, it is noted on the document
itself which you can get from the tax rolls or a title company.
Compare that price to the price the bank is asking.
 Look at the amount of loans that were once secured to the
property. Somewhere between the original mortgage balance(s)
and the foreclosure sale price is the amount the bank will accept,
if the home is under-priced.

 2. Determine Comparable Sales
 In many cases, the list price has little bearing on the value of the home. The
market value carries the most weight. If you are up against competing offers,
other buyers will offer more than list price. The list price is considered a "Starting
Bid.”
 Look at the last three months of comparable sales (a mini CMA) for that
neighborhood to determine how much this REO is worth. Try to use only those
homes that most closely match the REO regarding square footage, number of
bedrooms, baths, amenities and condition.
 Look at the pending sales. Call the listing agents of those pending sales to try to
find out the accepted offer price. Some will share that information, and some will
not.
 Look at the active listings. Those are most likely the listings other buyers will use
to formulate a price because they are the only homes those buyers tour.

 3. Run a CMA (Comparative Market Analysis)
 Most REO agents work for one or two banks. Some listing agents are
exclusive listing agents for REOs, and they do not list any other type
of property. Since REO agents deal in volume, they typically apply the
same pricing principles to all their REO listings.
 Look up the listing agent in MLS.
 Run a search using that listing agent's name to find the last three to
six months of that agent's listings.
 Pull the history of those listings to determine the list-price to sales-
price ratio. If most of those listings are selling for, say, 5% over list
price, then you may need to offer 6% over list price, and vice versa.

 4. Ask About Number of Offers
 If there are no offers on the REO home, you can probably offer less than list
price and get your offer accepted. However, if there are more than two
offers, you will most likely need to offer above the asking price.
 If there are 20 offers, bear in mind that some of those offers might be all
cash. Banks like all cash offers. If you are obtaining financing, then you may
need to increase the price on your offer to be considered.
 Note: In typical real estate transactions, the buyer presents the offer to the
seller who either accepts, modifies, or rejects it. The person who gives the
offer is the offeror; the person receiving the offer is the offeree. Unless there
are unusual circumstances, the brokers or principals’ agents are not a party
to the offer or purchase agreement. A counteroffer occurs when the offeree
rejects the offer and proposes new, or modified, terms.

 An offer is the first step toward a legally binding purchase contract.
 Its terms will create the initial rights and responsibilities of the parties.
 Since the licensee will often help draft or review an offer, understanding its legal
parameters is crucial.
 An offer need not be in writing.
 Though verbal offers are legal, a verbal acceptance by the seller cannot create a
legally binding contract for the sale of real property.
 Nevada’s Statute of Frauds requires all purchase contracts for real property to be
in writing.
 Therefore, to turn a verbal offer into an enforceable purchase agreement the
contract must be in writing, state the consideration, and be signed by the seller.
 In Nevada, most residential purchase offers are prepared using preprinted
forms. There is no state mandated purchase form for real property.
The Legalities of Offers

 Intent: Under general contract law, the offer must express the parties’ present
intent to contract.
 Even if performance takes place in the future, at the time of contracting the parties
must intend to be bound by their words or acts.
 In Nevada, all contracts are assumed to have an implied covenant of good faith.
However, good faith does not mean the parties have equal or balanced
responsibilities, obligations, rights or benefits.
 Clear Terms: When the client uses a broker, the broker is responsible for
ensuring the offer is complete with clear and definite terms.
 Ambiguous words or contradicting terms can make the offer unenforceable or void.
 There must be no built-in vagueness.
 Examples of an offer with vague or uncertain terms would be “close of escrow to be
at the end of the month”, or “seller accepts but retains the right to increase the
purchase price.”
 In those clauses, the close of escrow date is uncertain; the purchase price can be
changed at the whim of seller - both conditions defeat the requirement for clear and
definite terms.

 Agreement: Both parties must agree to all the terms of the offer – there
must be a “meeting of the minds.”
 A qualified or conditional acceptance turns the offer into a counteroffer which
must, in turn, be accepted. Thus, a counteroffer is a modified rejection of the
original offer and creates a new offer which must be accepted by both parties.
 The new offer will include those unchanged terms in the original offer if the old
offer is incorporated by reference into the new one.
 If there are subsequent counteroffers, each must reference the previous
offer/counteroffer.
 This ensures that those terms not in dispute are part of the final document.
 Delivery: The offer or counteroffer, must be promptly delivered to the
offeree (seller or buyer) who will then accept, counter, or reject it.
 If it is rejected, the licensee is responsible for obtaining a written notice of the
rejection from the client and providing that notice to the offeror within a
reasonable time.
 Once an offer (or counteroffer) is accepted and that acceptance it delivered to
the offer or, the parties have a legal contract.

The Purchase Agreement
 Even with research, You will need to plan on writing your offer “blind.”
 It is very hard to find out if there are other offers, how many there are, what
the purchase prices are and so on.
 REO listing agents want you to write your highest and best offer right out of
the gate.
 An REO property is not the property to play games with.
 “Haggling” is not usually an option here.
 Follow instructions!
 Many listing agents have specific instructions on how to right an offer.
 You may see attachments (or documents) on the MLS with instructions. These
instructions differ with every bank and can be VERY frustrating. Exact
instructions HAVE TO be followed, or your offer can be flat out rejected.
 Fill out EVERY associated document and have your buyers initial EVERY page,
even if there’s no specific place to do so.

 When drafting an offer to purchase real estate, you will include not only the
price that the buyer is willing to pay, but other details of the purchase as
well. This includes:
 How to finance the home
 The down payment
 Who pays which closing costs
 What inspections are performed and who pays for them
 Timetables
 Whether personal property is included in the purchase
 Terms of cancellation
 Any repairs to be performed and which professional services and vendors will be
used
 Timing of physical possession of the property
 How to settle disputes should they occur

 Buying a home is a major financial and emotional event for the buyer while it's all
about numbers for the REO seller.
 For most buyers, it will affect finances more than any other previous purchase or
investment.
 The bank makes plans based on the offer that affects their finances, too. However, it
is more important than just money.
 In the time it takes to write an offer, you are helping the buyer make decisions that
affect how they will live for the next few years, and for some, the rest of their lives.

Writing the Winning Bid
 Legibly write the offer –
or better yet, use typed or online forms.
 Some asset managers will toss aside handwritten
offers especially if they can't be read.
 Ensure your offer is complete and spells out in clear, concise language, the
terms and closing costs.

 Purchaser Information:
 The seller’s name and address should be as shown in the MLS/Tax Records.
 The purchaser's name should be the same as they want to take title.
 If they are an LLC or corporation, use that as the purchaser’s name.
 Name changes are considered assignments and will not be allowed.
 Include the purchaser’s address. Some REO's require the purchaser's phone
number.
 Be sure all this information is filled out completely.
 Asset managers will not take the time from their busy schedule to call you and
ask how to correctly spell purchasers names.
 The offer will be rejected.
 Real Property:
 Accurately copy the legal description as shown in the MLS/Tax Records.
 Most REO attorneys are out of town or even out of state. They rely on an
accurate legal description to begin their work.

 Purchase Price: The bank is looking to sell the property as soon as possible
for fair market value.
 They are not interested in looking at low offers.
 The bank puts a lot of effort into pricing their properties accurately.
 MLS data shows us that the banks will not drop their prices significantly, just
because they are an REO property.
 To determine a price, they have typically ordered at least two recent BPO’s
(Broker Price Opinions) and an appraisal.
 All the data has been thoroughly analyzed by their in-house staff of trained
professionals to establish a price.
 Once a month, the REO agent assigned to sell the real estate must submit an MSR
(Monthly Status Report) which will show up-to-date comps and market trends for
further analysis. New BPO’s are ordered every 90 days.

 Purchase Price (continued):
 It is common that a reduction of up to 3% in the first 30 days a property is
listed will be given serious consideration – just about anything else will almost
be rejected.
 From 30 to 90 days, after the bank has already reduced the asking list price,
they still may consider a reduction from 3% to as much as 8%.
 Once a home has been on the market 90 to 120 days or more, almost anything
can happen.
 If you offer over list price, bear in mind that the appraisal will need to
substantiate that price. If you find yourself dealing with a low appraisal, you
have options, so don't despair. Remember, the bank will most likely run into
this problem with the next buyer who obtains financing.
 Banks are aware of overbidding and have new addendums that include
verbiage that states that the buyer will pay cash for any additional offered
amount over the appraisal figure.

 Financing:
 Include type of financing and loan amount as a % of purchase price
 If cash, write in cash, N/A, or “X” out that section.
 The bank will review offers with any kind of financing including FHA in most cases, but
keep in mind that they are always looking at the big picture and the net.
 You do not want to submit an offer without showing the REO manager that you have
the means to purchase the home.
 With a new loan it’s of paramount importance to submit the Loan Status Report (LSR)
with your offer.
 If paying cash, show proof of funds
 Often buyers submit copies of money market account or bank statements (with the
account numbers obscured) to show that they are capable of completing the
purchase.
 Submit a preapproval letter or approval letter (not just a prequalification letter).
 To better the buyer's chances, and as is often required, have the buyer get
preapproved by the lender who owns the property. Do not expect to use this lender
for your loan, but submit the preapproval letter from this lender, along with the letter
from your own lender.
 Banks may not rely on other lender preapprovals but trust their own departments.

 Closing Costs:
 If asking seller to pay any closing costs, write in an exact dollar amount
vs. a percentage wherever possible.
 This may include:
 Discount points
 Buy down points
 Prepaids
 FHA Commitment Fee
 Appraisal
 Survey
 Tax service fee
 And other closing costs

 Closing Costs (continued):
 In most bank addendums, they reserve the right to choose what items are to
be considered closing costs.
 Be forewarned, although some Asset Managers have agreed to pay closing
costs in the past, most will not.
 The more the purchaser asks for, the more likely their offer will be rejected.
 Many banks will pay for home warranties.
 It is also best to keep your offer “clean.”
 The less that you request, the more likely you will be writing the winning bid.
They will always be looking at the bottom line.

 Earnest Money Deposit:
 Have the buyer write the Earnest Money check for at least what is
requested in the MLS. Banks usually want to see 1% for the good faith
deposit. Educate your buyers – a $500.00 check won’t cut it.
 Ensure you have a current (not stale-dated) check if you have been
writing a lot of offers and in the REO game for a while.
 Don’t Try to Choose your own Title Company.
 Choosing the escrow company who will help close the transaction is
normally the buyer’s decision, but when buying a bank-owned home,
buyers need to be flexible.
 More than likely, the bank will want to choose the title and escrow
companies.
 They have significant amounts of title work done during the foreclosure
process, so they usually want to stay with that title company.

 Many of the escrow and title companies that banks choose to use are
not local and are usually low bidders who are overwhelmed by
transactions as well.
 They will have a traveling notary service or local options for document
signing, but don’t expect the same service you get from your favorite
escrow officer.
 Take an active role in trying to help the title company get the contacts
they need locally, like the HOA information, etc
 Don't make the check out to simply the word "TITLE." Make it out to the
seller's requested title company.

 Proration's, Fees, and Expenses:
 Offer to Split Fees, Expenses, Pro-rations.
 Real estate taxes are prorated as always. Any past due taxes and
penalties are taken care of by the seller.
 Some banks will not pay transfer fees, for example. If the buyer offers
to split those fees, the bank will feel more amenable to accepting the
offer.
 The same is true for escrow fees.
 Many banks negotiate discount fees for title insurance or which type of
policy they will pay for.

 Seller's Additional Costs and Limit of Liability (a.k.a. Repairs)
 Purchasers are encouraged to make any and all inspections needed to
evaluate the property knowing that the property is AS IS.
 Banks do not know nor make representations of:
 How old the roof is
 Did the basement ever leak
 How much the electric bill runs
 Although the bank has seen a basic report, several pictures, plus the
appraiser’s report and pictures, none are home inspectors.
 Do not submit a list of repairs and upgrades the property needs with a low
offer.
 Asset Mangers will avoid such lists and the offer may be rejected.

 They will generally not make any repairs. Sometimes banks will pay for
repairs, but typically will not agree to do so at the offer stage.
 If there are serious problems found during a home inspection, try to
renegotiate after your offer has been accepted.
 Banks are much more likely to offer concessions once your offer is being
considered, especially if the repairs are required as a loan condition.
 Remember, the bank has limited information as to the actual condition of
the property.

 Personal Property: Don’t ask for any personal property in your offer.
 Banks cannot convey personal property.
 This includes appliances.
 You can state, “All items as per the MLS.”
 Anything that’s in the property when it closes is a bonus!
 Due Diligence:
 If other buyers are asking for 15 days to conduct inspections, and you ask for
less, you will be deemed the more serious buyer.
 Banks, just like traditional sellers, don’t like the “Free Look” that the Nevada
contract offers buyers during the inspection period.
 You should have no problem completing these tasks, (home inspection, pest
inspection, special inspections) within a shorter time frame.

 Home Purchaser’s Inspection:
 Most REO’s will allow a home inspection.
 In a perfect world, the purchaser would conduct this inspection prior to
making the offer, then wave it on the purchase contract.
 However, in an REO market, the property would probably sell before
the inspection report could come in.
 If a home inspection is included, do not ask for more than 5 calendar
days total to conduct it and get back to the seller in writing if the results
are unsatisfactory.

 Well and Septic: Many times, the REO company will not pay for a
septic inspection or water test. You can still ask as a part of the offer
and they will counter back if they will not.
 If your purchaser is willing to pay for the water test and septic
inspection, choose the buyer will pay option.
 If the purchaser decides to provide their own water test and/or
septic inspection, the REO company often considers it a part of the
Home Purchaser’s Inspection.
It should be conducted within 5 calendar days of offer acceptance.

 The Closing Date:
 Provide enough time for the lender to complete the loan.
 The seller will charge a per diem if the closing is delayed at no fault of the seller.
 30 days from contract date is almost always acceptable.
 Asking for more than 45 days from the date of the contract will be countered or
possibly rejected outright.
 If the offer is countered and a few days pass, remember to change the loan
commitment and closing dates if you counter the counteroffer.
 Closing should be anywhere from 21‐45 days. The banks do not like to do
extensions.
 Walk Through:
 Three days should be the maximum number of business days requested.
 Do not wait until the last minute to conduct your final walk through with the
purchaser. If there is a problem, it takes time to correct it.

 Other Terms and Addendums:
 There are two fields for additional information.
 The first is for a list of addendums and attachments.
 The other is for terms.
 Many banks require addendums that must be included with the offer.
 If it is a Fannie Mae REO, include the wording that Fannie Mae requires
in the additional terms paragraph.
 Type in any other terms that the purchaser feels a need to address.

Contract Clauses
 Banks will not (typically) accept provisions for liquidated damages,
arbitration and mediation.
 Often, the buyer will initial these clauses – but the bank will not.
 If the buyer’s agent does not pick up on this, then the buyer would be bound by
these terms and the seller would not.
 Some addendums come back after a contract has been ratified by all parties to
exclude these particular clauses.
 Negotiated away often is that the seller will not perform any repairs –
regardless of the outcome of any inspection.
 The key here is to inspect prior to writing the offer and asking for adjustments in
the form of an adjusted asking price.
 In other words, if you would offer $200,000 for a Nevada REO home for sale but
you feel as if there is $10,000 of cosmetic repairs (paint, carpet, etc.), then offer
$190,000.
 It is so much cleaner this way and much more likely that your offer will be
considered.

Required Documentation Included
 Make sure that all documentation required by the listing agent is included:
 Offer docs
 Copy of the deposit check
 Pre-approval letter
 Verification of Funds
 FICO scores, etc.
 Addendums
 Transaction cover sheets
 Disclosures
 EVERYTHING they ask for
 Take time to make sure they are properly filled out, signed and initialed as
required.
 Your offer will most likely be rejected if everything is not filled out
perfectly and something they ask for is not included.

 Email the offer to the REO listing agent.
 They want offers in email format because they need to upload them to the asset
manager’s websites.
 Make it easy for them.
 Put all the signed docs together, scan and email them to the REO listing agent.
 Use the email address they tell you to use.
 If you don’t have a multi-page scanner, it’s time to get one.
 You’ll also need a program to convert the docs into .pdf format. Scan everything at no
more than 300 dpi in black and white.
 You have to be able to email the docs – large files will jamb the listing agent’s box and
may not get there at all.
 Ask for Confirmation of Receipt!
 Include the words, “PLEASE CONFIRM RECEIPT OF THIS OFFER” in your email
with the offer docs.
 Don’t ever take for granted the lender is in receipt of your offer.
“How To’s”

 Acceptance:
 Allow at least 5 business days for a response.
 They may reply sooner and often it takes longer.
 If there are multiple offers, your purchasers may be asked to sign a Multiple
Offer Addendum. These tell all purchasers that there are completing offers and
usually ask for the purchaser’s highest and best offer.
 The seller may still reject any and all offers.
 Contract Can Not Be Assigned
 Addendum Applies:
 If any language in the purchase contract and the addendum are in conflict, the
addendum language always prevails.
“How To’s”

 As Is:
 All Seller’s addendums will state, often taking several paragraphs to do
so, that the property is being sold as is.
 The seller will not make repairs before or after the closing.
 Possession:
 Purchaser cannot move in prior to closing.
 Purchaser cannot make any repairs prior to closing.
 Purchaser cannot “move just a few things in” prior to closing.
 Please don’t ask.
“How To’s”

 Per Diem Penalty:
 Seller will require purchaser to pay a penalty of $______ per day if the closing
is delayed due to no fault of theirs.
 This includes the lender not having the loan ready or the attorney not being
prepared.
 Often this is already included in the addendum, or a blank space is provided to
write it in.
 Anything less than $100 and the offer will likely be rejected, countered, or
another offer accepted.
 Lender Information:
 Many seller’s addendums ask for the name of the lender, loan officer or contact
person, address, phone and fax numbers, email address. Be sure all this
information is filled out completely.
 Asset managers will not take the time from their busy schedule to call you or
me and ask how to contact the lender. The offer will likely be rejected.
“How To’s”

Sample Offer Summary
 Property Address
 Buyer’s Agent
 Buyer’s Agent Contact
 Buyer’s Name(s)
 Offer Date
 Offer Close Date
 Offer Expires
 Offer Amount
 Earnest Deposit Amount
 Financing Amount
 Home Warranty
 Buyer's Costs Paid By Seller
 Seller Closing Costs
 Repairs Requested By Buyer
 Buyer Inspection - # Of Days
 Contingencies
 Comments
 Financing Type
 LTV
 Preapproved (Yes Or No)

Writing a Purchase Agreement on a HUD Home
 Who can Purchase a HUD Home?
 Any individual who can qualify for a loan or who can pay cash may purchase a HUD
home.
 Purchasers must use a broker or agent who is registered with HUD to place a bid on a
property.
 Purchasers must also have a pre-qualification letter from a lender or proof of cash funds
in the amount of or greater than the property they are purchasing.
 Buying a HUD Home
 When someone with a Federal Housing Administration
(FHA) insured loan can't meet the payments, the lender
forecloses on the home.
 FHA pays the lender what is owed and then the United
States Department of Housing and Urban Development
(HUD) takes ownership of the home.
 Then HUD sells it at market value as quickly as possible.

 How are HUD Homes Sold?
 All HUD Homes are listed at their "AS-IS" fair market value.
 Purchasers (with the exception of special program purchasers)
must obtain the services of a HUD-registered real estate agent.
 Agents may submit bids on HUD properties on behalf of their
buyers.
 The bid that meets the acceptable threshold and has the highest
net to HUD, receives a provisional bid acceptance subject to
receipt of all required documents.
 Once a bid is accepted, an original Sales Contract Package must
be submitted within 48 hours.

 How is Fair Market Value determined?
 By a licensed FHA appraiser
 Copies of the FHA appraisal are available to the lender by request after
a property is under contract.
 If a property is exposed to the market without any acceptable offers,
then a reduction of the listed price may occur.

 Does HUD make any repairs to the property?
 No.
 All HUD properties are sold in their "AS-IS" condition.
 There are no representations or warranties, expressed or implied, on any
HUD property.
 HUD does not guarantee the condition of any property, FHA-insurable or
not, nor whether it meets local codes or zoning requirements.
 Purchasers are advised that there may be code and/or zoning violations on
these properties and that it is the responsibility of the purchaser to identify
these violations.
 Buyers are very strongly encouraged to have homes inspected by a
qualified home inspection company to satisfy themselves as to the
condition of the property at the time of sale.

 Sales Contract Package – required forms
 Contract documents must be received within 2 business days after
the internet posting of bid results.
 Therefore, the Sales Contract Package should be completed with
your purchaser PRIOR to placing the bid.
 This allows for two benefits:
 First, the sales contract outlines the electronic bid submission form
and can be used to fill in the bid information;
 Second, if your bid is awarded, the package can be sent via overnight
mail to be received within the deadline.

 The successful bidder MUST submit a completed sales package by
OVERNIGHT MAIL, which consists of the following:
 1. Sales Contract – HUD form 9548 (1/99)
 2. Conditions of Sale - must be signed
 3. Copy of Earnest Money check
 4. Forfeiture and Extension Policy
 5. Broker’s Agreement to Abide by HUD’s earnest money forfeiture policy
 6. Lead Based Paint Addendum - if applicable
 7. Radon Gas and Mold Notice and Release Agreement
 8. Owner Occupant Certification – HUD form 9548D (1/98) - if applicable
 9. Pre-qualification letter or for cash sales provide verification of funds

Completing the HUD Sales Contract Package
 Mistakes and Omissions
 If your contract package contains any mistakes or omissions, your bid may be
cancelled, and the property placed back on the market, or the backup bidder
notified.
 Be careful when filling out the contract and addenda and be sure it is complete
and correct.
 1. Sales Contract – HUD form 9548 (1/99): Line by Line
 Electronic Version: You may download and use the electronic version of this
form so long as the “Conditions of Sale” is signed by all buyers and you do not
make any copies of the PDF contract (the form used must be from the printer).
 To produce a form that is filled out, you would need to enter the HUD case
number and your confirmation number. In that instance you would enter
information only on Line 2, Line 12, and Line 13 (see particulars below).
 If you elect to fill in the contract manually, please follow the directions
below.

 Line 1 – Complete the purchaser’s name and address of the property
including city, state, and zip code.
 Fill in the HUD case number in the designated box and write the
confirmation number above the box.
 These contracts are not assignable.
 The purchaser whose social security number was used in the bid must
appear on the contract.

 Line 2 – Fill in the purchaser’s name and legal form of ownership.
 The HUD closing agent will prepare a deed to transfer ownership
according to this line.
 This line may not be left blank or “to be determined.”
 Line 3 – Enter the purchase price (the bid price) and earnest money
deposit.
 Deposit checks must be written out to the brokerage and must be in
the selling broker’s possession PRIOR to placing a bid.
 Earnest money deposits should be in the form of a certified check,
cashier’s check, or a money order.
 Sales price up to $49,999 earnest money deposit = $500
 Sales price $50,000 and up earnest money deposit = $1,000
 Vacant Lot: ½ of the purchase price of the property.

 Line 4 – Financing Type: Financing Options
 Although HUD does not offer financing directly, some of their homes
qualify for FHA insured loans.
 There are 3 different methods a purchaser can buy a HUD property:
 FHA Financing
 Conventional Financing (any non-FHA or VA financing)
 or Cash
 In all instances, either a pre-qualification letter from a lender or
proof of cash funds is required as part of the contract package which
is due 2 business days after a bid has been accepted.
 One of the first actions you should take with a prospective purchaser
who requires financing is to have them meet with a lender to receive
a pre-qualification letter.

 There are three types of FHA Financing:
 IN – Insurable – 203(b): Properties listed IN appear to qualify for FHA
203(b) financing. There should not be any repairs necessary.
 IE – Insurable with Escrow – 203(b) Repair Escrow
 Properties listed IE are eligible for FHA financing with repairs to be completed
by the purchaser after the close of escrow.
 These repairs must be Minimum Property Standard (MPS) repairs totaling less
than $5,000.
 MPS categories include; roof, structure, and mechanical systems (such as
plumbing, electric, and heating.)
 A listing posted inside the property will indicate actual repair amounts.
 The cost for the repairs is not paid by HUD; however, the buyer may finance the
repair escrow amount in their loan. The lender is responsible for inspections of
the repairs and authorizing release of funds.
 On the purchase agreement the repair escrow amount is not deducted from
the net to HUD or added to the purchase price on line 3. The repair escrow
amount should only show on line 4.
 REPAIR ESCROW ONLY APPLIES TO FHA FINANCING –
not cash or conventional transactions.

 UI – Uninsurable – Conventional, Cash, or 203(k)
 Properties listed UI generally are in need of extensive repairs and are usually
purchased with cash or conventional financing.
 The only type of FHA financing they may qualify for is a FHA 203(k) loan. 203K
FHA financing is a rehabilitation loan for owner occupants purchasing
properties that have over $5,000 dollars worth of MPS repairs.
 Not all UI properties will qualify for FHA 203(k) financing.
 If your purchaser is applying for FHA Financing
 1. Property listed IN: 203(b)
 2. Property listed IE: 203(b) with Repair Escrow
 Add the repair escrow amount where the contract states: “Said Mortgage ONLY
IF THE PURCHASER IS OBTAINING AN FHA 203(b) REPAIR ESCROW LOAN – do
not fill in an escrow amount if the purchaser is paying cash or getting a loan not
involving FHA.
 3. Property listed UI: 203(k)
 if the property qualifies for 203(k) financing

 4. Non-FHA financing
 Purchaser is paying cash or applying for conventional or other financing
not involving FHA.
 If purchaser is paying cash please circle the word cash and be sure to
include in your package a verification of funds.
 Please leave all other mortgage information BLANK (down payment,
mortgage amount, and months)

 Line 5
 Closing Costs can be up to 3% of the purchase price.
 Closing costs can be found on page 2 of the Forfeiture and Extension
Agreement.
 Closing costs paid by HUD if closing costs are entered on the bid and sales
contract:
 Appraisal Fee: For an FHA 203(k) loan that is necessary to determine the “after rehab”
value; for a new appraisal where the appraisal expired prior to sales contract
execution.
 Credit Report: Up to $20
 Flood Certification: If property is offered with FHA insurance and is on a Flood
Plain
 Home Inspection: Includes testing for lead-based paint, radon, mold, etc.
 Loan Discount Points: Up to 3% to buy down the rate, with certification from
lender
 Loan Origination Fees: Up to 1% will be paid on Conventional/FHA loans; up to
1.5% will be paid on FHA 203(k) loans

 Recording fees and Transfer Charges for Mortgage: If sufficient funds are on
Line 5, fees will be paid; otherwise, these are the purchaser’s costs.
 Survey: If required by Lender
 Title Insurance Coverage for Lender: If sufficient funds are on Line 5
 Title Insurance Coverage for Owner: If sufficient funds are on Line 5
 Homeowner’s Warranty: $200 - $400 depending on State; Check HUD Notice H
2001-13
 Prepaid and escrow items: For owner occupant purchasers only
 Closing costs automatically paid by HUD:
 Pro-ration of property taxes and any special assessments such as HOA fees, utility bills:
paid by HUD automatically.
 Settlement or Closing Fee: HUD will pay HUD’s closing agent; if another Agent is used,
this is the purchaser’s cost.
 Transfer Charges and Recording Fees: for the deed only, paid by HUD automatically.
 Condominium or HOA Transfer Fee: If applicable.
 Repair Escrow Fee: Where applicable

 Line 6a – Selling agent commission up to 5% of the purchase price
 Line 6b – N/A
 Line 7 – Net to HUD
 line 3 minus lines 5 and 6
 be sure your math is correct on this line
 Line 8 - Purchaser type: Investor or Owner Occupant.
 Misrepresenting a purchaser as an Owner Occupant is a SERIOUS offense that may
constitute fraud and may result in an investigation of the Broker, Agent and Purchaser
by the office of the Inspector General.
 Leave discount amount blank. (Discounts for OND/TND and Non-Profit
purchasers only)

 Line 9
 Sales transactions shall close not later than 45 days from seller’s acceptance.
 Properties may close in less than 45 days, but 45 days MUST be on the contract.
 If closing does not occur by 45 days, then extension fees will apply.
 A closing date must be scheduled with the HUD-designated closing agent.
 HUD has appointed closing agents on a separate contract to act as their representative
in the closing.
 HUD-designated closing agents are assigned HUD properties by county.
 Each property is assigned a closing agent and the property must close with the
designated closing agent present.
 Third-party closing agents may also be used but the closing date must be scheduled
with the HUD designated closing agent, and they must be present at the closing. Any
additional cost for using a third-party closing agent must be paid by the purchaser.
 Line 10 – Back-up offers
 does not apply
 You should only send in a sales contract package if you are the accepted bidder. Contract
packages received that are not from the awarded bidders will be discarded without
notification.

 Line 11
 If the property was built prior to 1978 please mark line 11 “is” attached.
 Always mark that other addendum “is” attached.
 Every contract package must also contain the other required addenda.
 Line 12 – HAVE PURCHASER(S) INITIAL CONTRACT HERE
 Double check that ALL purchasers have initialed this box before sending the
contract package.

*Line 13 – Purchaser information:
Please be sure all information is written in the correct boxes.
□ Type or print name
□ SIGNATURE(S) – All purchasers’ signatures are required. Contracts that are
received without the purchaser’s signature may be cancelled immediately and
placed on the market
□ Social Security Number or EIN/FIN for ALL purchasers
□ Purchaser’s address, and phone number
□ Date Contract was signed
□ DO NOT have purchasers sign in the “Seller” box or the “Authorizing Signature
& Date:” Box. This is to be used by the authorized HUD signing
agent ONLY.
□ Certification of Broker
□ Broker’s Name and business address
□ Broker’s EIN or SSN#
□ Signature of broker – Broker (or individual given written permission to sign as
the broker, such as an office manager)
□ SIGNATURE STAMPS are not allowed
□ Broker’s Phone Number with Area Code
□ Agent’s Full Name
□ Agent’s Phone Number with Area Code

 1. Conditions of Sale
 The Conditions of Sale page is attached to the sales contract and must be signed by all
purchasers.
 2. Copy of Earnest Money Deposit
 A copy of the money order or certified check is a required portion of the sales package.
 Earnest money is held by the selling broker.
 A copy of the deposit slip of the earnest money into the broker’s account is also
acceptable.
 Sales price up to $49,999 earnest money deposit = $500
 Sales price $50,000 and up earnest money deposit = $1,000
 These amounts are not negotiable.
 3. Forfeiture and Extension Policy
 This 3-page form is an explanation of forfeiture and refund of earnest money deposits for
owner-occupants and Investors as well as acceptable closing costs and extension of
closing date request guidelines.
 Please be sure this document is read and signed by all purchasers.

 4. Broker’s Agreement to Abide by HUD’s Earnest Money Forfeiture
Policy
 This document MUST be signed by the BROKER, not the agent or an
individual authorized in writing to sign on the broker’s behalf.
Signature stamps are NOT ALLOWED.
 5. Lead Based Paint Addendum
 If the property was built prior to 1978, this addendum is required.
 This 1-page form must be signed by all purchasers and agent or
broker.
 6. Radon Gas and Mold Notice and Release Agreement
 This agreement must be signed by all purchasers.

 7. Owner Occupant Certification - HUD form 9548D (1/98)
 required for all owner occupant purchasers
 must be signed by all purchasers and the broker, not the agent –
stamp signatures are not acceptable.
 8. Pre-Qualification Letter or Proof or Funds for Cash Sale
 A Letter of Commitment or a Pre-Qualification Letter - from an
industry-recognized bank or mortgage underwriter.
 For cash sales, provide verification of cash funds. This can be a bank
statement, letter from a bank, or other forms or verifications that
provide evidence that cash funds will be available.

Contract Cancellation
 In the event that a contract must be cancelled, the property will be re-
listed the following Friday after the cancellation has been processed.
 If a purchaser must cancel, regardless of the reason, then a
cancellation request form must be submitted along with an
explanation of the reason for cancellation.
 If the cancellation is due to a loan denial from a lender, then the denial
letter must accompany the cancellation request.
 If the cancellation is based on a property condition issue, then a copy
of the Home Inspection must be included with the cancellation
request.
 The decision regarding the refund, forfeit, or 50/50 split of the earnest
money deposit is based on HUD guidelines as stated in the “Forfeiture
and Extension Policy.”

Important Deadlines
 In an effort to be fair to all purchasers, HUD has mandated time
frames that must be met, or a contract may be cancelled.
 You are responsible for meeting each of these deadlines.
 Bid Submission Deadline
 All property listings will contain a deadline date and time.
 Bids are reviewed for acceptability on the following business day
after the deadline of bid submission.
 It is possible that the day you submit a bid, the review of the bids
has not been completed from the day before; therefore, it may
appear that the property is available and that you have submitted
a higher bid.

 Sales Contract Package Submission Deadline
 It is your responsibility to check for the accepted bid information and ensure
that all the required forms are properly completed and sent by overnight
mail.
 If a contract package is not received by the deadline, the provisional bid
acceptance will be cancelled and they may proceed with a back up offer, if
applicable.
 1. Complete your Sales Package PRIOR to submitting a bid on the
Internet.
 This includes obtaining a pre-qualification letter from a lender or
documentation of available cash funds.
 2. Be extremely careful when completing the electronic bid submission.
 An error made when entering the sales amounts purchaser’s Social Security
number, or a company’s Federal Identification Number may result in the
cancellation of a provisional bid acceptance.

 3. Be sure to thoroughly explain the following
policies to your purchaser:
□ HUD’s “AS-IS” Policy: all HUD properties are sold strictly AS-IS.
□ Disposition of the Earnest Money Deposit as stated on the first page of
the Forfeiture and Extension Policy.
□ Line 5 Closing Costs may only be used for certain HUD-approved items.
Please review the second page of the Forfeiture and Extension Policy
with your purchaser.
□ Completion of a Home Inspection prior to closing to be done for the
purchaser’s protection so they understand the nature and cost of any
required repairs; HUD does not make any repairs to a property before
or after closing
□ Occupancy Prior to Closing is completely prohibited.
• Purchasers may not do any work whatsoever to a property prior to the
completion of settlement.
• Purchasers may not occupy or store any items at the property prior to closing.
• Occupying or working on a HUD home prior to the close will be treated as
trespassing.

□ Be aware of all processing deadlines to avoid cancellation of a provisional bid
acceptance or contract:
□ Bidding Deadline Dates on each listing indicates the deadline by which time a
bid must be placed in order to be considered on the bid opening date.
□ Original Contract Package must be received within 2 business days after the bid is
posted under “Bid Results”. Faxes are not acceptable.
□ Correction Requests have specific deadlines. Be sure to respond within the time
frame on any correction request to avoid cancellation.
□ Closing Date as stated on your Closing Agent Instructions. This will be 45 days (unless an
incentive is available) from the date the contract was signed. If a purchaser
cannot close by this date, you must request an extension of time to close PRIOR
to the expiration of the contract.
□ Earnest Money Forfeiture if a transaction has been cancelled and the EM deposit, you
have 10 days to send a check or money order for the amount of the requested
deposit.
□ Any other deadline as designated.
□ Place the case number and property address on all material submitted by e-mail, fax,
regular mail, or overnight mail. Also, have the case number and property
address handy whenever you contact our representative for any type of
inquiry or issue.

 You are now ready to take the end-of-course quiz.

End-of-Course Quiz
1. The suggested time for due diligence on an REO offer is:
A. 5 days.
B. 10 days.
C. 15 days.
D. 30 days.

2. The amount of the earnest money deposit should be:
A. $500.00.
B. $1500.00.
C. Whatever the buyer can afford.
D. The amount requested by the seller per the MLS.
End-of-Course Quiz

End-of-Course Quiz
3. In order to better the buyer's chances, the earnest money
deposit check should be made out to:
A. "TITLE."
B. the buyer’s title company.
C. the seller’s choice of title company.
D. None of the Above

4. Regardless of what the purchasers list their names as in
the offer, they can reassign it later.
A. True
B. False
End-of-Course Quiz

5. The proof of funds should be:
A. A bank statement.
B. A pre-approval letter.
C. An approval letter.
D. Any of the above
End-of-Course Quiz

6. A CMA is:
A. A Competitive REO Analysis
B. A Comparative Market Analysis
C. A Cash Monies Authorized
End-of-Course Quiz

7. A BPO is:
A. A Broker Price Opinion
B. A Broker's Positive Outcome
C. A Buyers Proof of Option to buy
End-of-Course Quiz

8. The suggested closing date to enter in an REO purchase
agreement is:
A. 5 days.
B. 10-15 days.
C. 21-45 days.
D. None of the above
End-of-Course Quiz

9. In a contract - the INTENT:
A. Is based on the earnest money deposit amount.
B. Is an agreement between the buyers and their agent.
C. Must express the parties’ present intent to contract.
D. All the above
End-of-Course Quiz

10. The best way to prepare an REO offer is:
A. To type it using online templates.
B. To verbally present it to the seller's agent.
C. To hand write it.
D. To have the buyer present it directly to the seller.
End-of-Course Quiz

11. The offeror is TYPICALLY the:
A. Buyer's agent.
B. Buyer.
C. Seller.
D. Listing agent.
End-of-Course Quiz

12. In a purchase agreement, the seller's Limit of Liability is
for:
A. Repairs
B. Amount they may be liable for if the seller defaults
C. Both A & B
End-of-Course Quiz

13. In an REO purchase agreement, you should allow the
seller:
A. 24 hours to respond.
B. 5 days to respond.
C. 10 days to respond.
End-of-Course Quiz

14. HUD stands for:
A. Home Under Default.
B. Housing and Urban Development.
C. Housing and Urban Defaults.
End-of-Course Quiz

15. In a HUD home, Fair Market Value is determined by:
A. A BPO.
B. The selling agent.
C. The listing agent.
D. A licensed FHA appraiser.
End-of-Course Quiz

16. In a HUD Home:
A. Occupancy prior to closing is completely prohibited.
B. A lease may be obtained prior to closing.
C. All the Above
End-of-Course Quiz

17. FHA stands for:
A. Federal Housing Administration.
B. Financial Help Association.
C. Federal help Administration.
End-of-Course Quiz

18. In a HUD home, prior to approval, the earnest money is
held by:
A. Escrow.
B. The selling broker.
C. The listing broker.
D. The seller.
End-of-Course Quiz

19. The original HUD offer, and Contract Package must be
received within _____ business days after the bid is posted
under “Bid Results.”
A. 2
B. 3
C. 5
D. 10
End-of-Course Quiz

20. The form titled: Broker’s Agreement to Abide by HUD’s
Earnest Money
Forfeiture Policy must be signed by:
A. The broker.
B. The buyer.
C. HUD.
D. The lender.
End-of-Course Quiz

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