Originally published: January 5, 2012

Due to the proliferation of REO transactions and concerns expressed by Real Estate Professionals regarding potential liability in representing Buyers of such property, we have been asked to prepare some very simple language that can be incorporated into most contracts. While a more complete disclosure statement may be better, the use of the following language (or similar language) will at least provide a very cursory introduction to the Buyer of the inherent risks of acquiring foreclosure property, thereby reducing potential legal liability to any party representing a Buyer of REO property:

The Purchaser/Buyer understands that the subject property is owned by a party who/which has taken title through foreclosure (“REO Property”). Accordingly, in most instances, the Seller will make no representations or warranties regarding the condition of REO Property. The Purchaser/Buyer understands and acknowledges the inherent risks of acquiring REO Property, including the increased possibility of latent and/or other material defects due to prolonged periods of neglect or abuse by prior owners and/or title issues associated with potential defects in the foreclosure process.

Nevertheless, before using this or any other verbiage when handling REO transactions on behalf of Buyers, we strongly advise you to have your Buyers consult with a real estate attorney. That is really the best way to insure that your Buyers are adequately informed of the inherent legal risks associated with purchasing REO property.

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