My client put a contract on a REO "as-is property from a major lender. The listing agent informed us that if we used the seller's bank that they would pay 3% CC, give a home warrenty, and charge no per-diem because they always take so long. My buyer agreed and went through their approval process which was a nightmare. Then this wonderful institution wanted to lock in this 800 credit score client at 5.75, and then only came down to 5.5 after our in-house lender gave him a GFE of 5.25%. So after we got that settled and were getting ready for the second closing date because of the lenders delays, we find out the day before closing that the lender will require "buyer repairs" before the package is released. So the seller has in it's signed addendums that the buyer can make no repairs prior to closing and the lender( same company) says no package until repairs are made. Now this is a conventional loan with 20% down and my buyer says he is not making repairs to a house he does not own. Our attnorney says it is the craziest thing she has seen and now the buyer just wants his EM back and to get away from this entire deal. I sent in the T&R and I was informed that this bank will only accept a denial letter for the EM to be released. Now my question is, if my buyer refuses to make repairs will the lender then deny the loan, or will they say that he refuses to perform and keep the EM.
What say you

I say it's a good thing your Client has already engaged an Attorney. Let them earn a Fee.

Let the attorney work it out at this point.

the seller's addendum will control. the seller may have failed to honor the original agreement with respect to repairs. the seller can perform per the contract on its own initiative or per your demand, or the buyer can cancel the escrow. the lender is not in a position to amend the contract. concerning what the lender will do is speculative..who knows..they're already being unreasonable. your job is to know the terms of the purchase contract and addendum, and to honor your client's wishes (regardless of a lost commission). from the buyer's point of view, if there is to be another extension of time and a change in the contract, and the lender insists that the buyer pay for the repairs, the buyer should ask the seller for an equivalent reduction in the purchase price. typically, in an REO sale the seller will pay for repairs.
so, back to square one...renegotiate with the seller, find another lender or the sale dies.

I would say the banks got insane and some of the asset managers do not know what exactly they are doing. Down end market is crazy!