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REO Properties: Are lenders exempt when it comes to disclosure?

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By Peg Ritenour, OAR Vice President of Legal Services/Administration

Although the number of “REO” properties on the market has decreased, REALTORS continue to be involved in the sale of many bank owned properties. Below are some of the questions the OAR Legal Hotline has received about how various disclosure forms apply to these transactions and what to do if the lender won’t sign them…

Q: Does a lender selling its own property have to complete an Ohio Residential Property Disclosure form?

A: Under Ohio law the only time a lender is exempt from providing a Residential Property Disclosure form is if the lender acquired title to the property by accepting a deed in lieu of foreclosure. In that instance the lender would not be required to provide a Residential Property Disclosure form when it later lists and sells the property. However, when a property is sold at a sheriff’s auction, the successful bidder is required to provide a form upon later resale of the property. This is true whether the successful bidder is the lender or someone else.

Q: What if the lender is required to provide the form to the buyer but the lender refuses or says they are exempt? What should the REALTOR do?

A: In most cases the lender does not want to provide the disclosure form to the purchaser because of its limited knowledge regarding the condition of the property and it is selling it “as is.” The listing broker should explain that if the lender acquired title through a sheriff’s sale, under Ohio law it is required to provide the form to the purchaser even if it is selling the property “as is” and if the lender doesn’t do so prior to contract, the purchaser will have the right to rescind that purchase contract. This rescission right can be exercised for 30 days after the contract was signed or closing, whichever occurs first. Of course the lender should be referred to its own legal counsel and the REALTOR should document in his file any refusal by the lender to provide the form.

Q: Can the lender provide their own form to the purchaser instead of using Ohio’s disclosure form?

A: In some instances a lender may have its own disclosure form that is different than the Ohio version. While the lender can provide their own disclosure form to the buyer if they wish, this will not satisfy Ohio law or eliminate the buyer’s rescission rights.

Q: What about the Lead-based Paint Disclosure? Are lenders required to provide that form to a buyer?

A: In the sale of residential property constructed prior to 1978, federal law requires that the seller provide the buyer with the Lead-based Paint Disclosure form and the EPA pamphlet. While these forms are not required at a foreclosure sale (i.e. the sheriff’s sale), anyone acquiring the property at that sale must provide them upon resale. There is no exemption for lenders selling property it owns. Thus, a lender who is selling pre-1978 property it purchased at sheriff sale is required to give the subsequent purchaser the mandatory Lead-based Paint form. If it refuses, the lender should be referred to its own attorney and this should be noted in your file.

Q: Lenders are notorious for not returning the Agency Disclosure form. Is it sufficient to just indicate in your records that the lender didn’t return the forms? What if you are a dual agent and the lender won’t sign the Agency Disclosure form?

A: If the lender does not return the listing broker’s “Consumer Guide to Agency Relationships” it is sufficient to note on the Consumer Guide that the lender did not return it. It is also recommended that you document your request that the lender sign it (i.e. e-mail asking for it).

As to the Agency Disclosure Statement, the same process should work as long as you document in your file that you have presented the Agency Disclosure Statement and keep e-mails asking for the lender to sign and return it. However if you are acting as a dual agent in the transaction, this process is not sufficient. That is because under Ohio law you must have the consent of both parties to act as a dual agent. If you cannot obtain the lender’s signature on the Agency Disclosure Statement, you cannot act as a dual agent. This will require you to terminate your representation with one of the two parties. Most likely that will be the buyer. Such a termination should be done in writing.


Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney. 

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