This is so inequitable I wonder if it’s legally enforceable.

I think anyone who wants to buy an REO is obviously weighing the risk of buying an “As Is” property with all the “Defects” in order to get a good deal. (Some times 30% off). So, it is essentially a “Venture Capital” operation. You buy a 600K property for 400K with a small chance of having a surprise $50K repair.