Financing in New Haven>Question Details

D_rek, Home Buyer in New Haven, MI

Appraisal for Rural Development Financing and Foreclosed 'As-Is' Home

Asked by D_rek, New Haven, MI Sun Jun 5, 2011

I'm a first-time home buyer currently in the process of purchasing a foreclosed 'as-is' home and seeking rural development financing. I've come into a bit of a quandary with the appraisal of the home.

First, the home is a bank-owned foreclosure and as such, I had to sign disclosures regarding the 'as-is' sale of the home. Basically what this means is that the bank takes no responsibility for the condition of the home before, during and after the sale of the home.

Second, i'm seeking Rural Dev. financing because it is much more lucrative.

Lastly, I am now in a situation where the appraiser for the home has identified some very superficial, cosmetic repairs that need to be made before we can proceed with the sale. However, because this is a foreclosed home I am not in a situation where I cannot really negotiate with the seller (aka: the bank) to make repairs before closing on the home.

I am wondering if anyone had any advice for me. Thanks!

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Answers

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No one wants to lose the deal express this with your lender and real estate agent as well as their brokers, hopefully they can brainstorm and come up with a resolution for you.
0 votes Thank Flag Link Thu Jun 9, 2011
Hi, sometimes the lender-owner of a foreclosed home will still agree to some repairs, if they know that your financing depends on it. They also might be agreeable to get the work done if the closing date does not have to change. It's worth asking anyway.

You might also check with Rural Development about money that can be built into the loan for the purpose of doing necessary repairs, they have some programs that can handle that, I believe.
0 votes Thank Flag Link Wed Jun 8, 2011
Hi D_rek,

It is nice to see that you are active in the process of home buying and taking the time to get all your questions answered.

Good luck
0 votes Thank Flag Link Wed Jun 8, 2011
Glad our advice helped and the situation has been resolved. Good luck with the rest of your closing!
0 votes Thank Flag Link Wed Jun 8, 2011
Hello All,

I was able to remedy the situation.

My realtor spoke with the Listing Agent who gave me full authority to be on the property. I also spoke with the appraiser, who was very helpful in identifying to what extent that the repairs would satisfy the HUD requirements.

It seems that the FHA/Rural Dev guidelines are very stringent and do not really account for foreclosed properties. I understand that in most scenarios the listing agent/seller/bank would be responsible for amending repairs to properties they technically own but in cases like mine - with the home being sold 'as-is' and where the repairs are superficial - it really made me panic for a moment to see that I might have to fold the deal just because of a few loose chips of paint.

I would think that FHA/Rural Dev. and also Appraisers would understand the current state of the housing market and be perhaps more forgiving about some of these things. Luckily, I was able to resolve the situation with the listing agent.

Anyway, thanks for all of the input.

-d_rek
0 votes Thank Flag Link Wed Jun 8, 2011
We are working with a client now for the first time using USDA. Haven't had this happen yet - will be interesting to see. The home is newer and seemed in pretty good condition. We did encounter the loan financing to be conditional on a pool being returned to clean and working order on a short sale though. It posed a problem as the seller was a digressed property seller and had no money to replace the pool pump and have the pool drained and acid washed. The property was being purchased using FHA and the listing agent kicked in money for the repairs and the seller came up with some cash to put toward the repairs so the buyers could get their loan.
0 votes Thank Flag Link Wed Jun 8, 2011
D_rek

Are you working with a Realtor? Your Realtor should of written a letter stating all these repairs when the offer was submitted to the bank, this might of helped with your negotiations. Including professional estimates with your offer would have given you a better idea what was needed in the house. You can still do the work yourself if you want, but you would of known what should of been repaired and an idea of the cost.

I'm not sure why you would want to put any money into a home that you do not own.

If you need help with Rural Development, email me, we just had a seminar in my office and our mortgage department can help you.

Good luck
0 votes Thank Flag Link Tue Jun 7, 2011
You are welcome.

It sounds like the home may have been built before 1978, when lead paint was occasionally used, and so the peeling paint is considered a defective paint surfaces (i.e. chipping, peeling or flaking paint) and needs to be properly taken care of.

See: http://portal.hud.gov/hudportal/HUD?src=/program_offices/hou…

The downspouts being connected is required to insure that water is to drain away from house, need "positive drainage away from the foundation".

See: http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4150.…

Fortunately you can fix these for not much (time & material), and you can do it yourself. Good luck with negotiations.
0 votes Thank Flag Link Sun Jun 5, 2011
Hi Shane,

The exact verbage for the nature of the repairs is as follows:

"Scraping and painting loose paint on exterior windows and reattaching downspouts into drains. Once the aforementioned is completed it should meet HUD's minimum property standards for existing dwellings as outlined in HUD handbook 4150.2 and 4905.1."

There is wood trim around the exterior windows that has peeled in some locations - I would say on less than 10% of the existing wood trim. The largest spot is on the front of the home where a large spot trim is missing perhaps a softball sized area of paint. Through the rest of the trim the peeling is variable but is more akin to knicks/scratches.

The downspout itself runs to an underground drain and is simply missing a short length of gutter (approx. 1.5ft) from the downspout to the underground drain itself. The actual length of downspout was located not far from the gutter in the yard of the home. It looks to have maybe fallen off by weathering/act of God.


Looking at the 2nd page of the URAR under the 'reconciliation' section it states that:

"The appraisal is made: subject to the following repairs or alterations on the basis of a hypothetical condition that the repairs or alterations have been made"

Which iI take that to mean that the appraised value of the home is based on the identified repairs/alterations having been made.

I'm hoping that the seller (the bank) will allow me to reconcile the repairs myself or put language into the disclosures allowing me to repair upon possession.

Anyway, thanks for the input! I'll be sure to pass on to my realtor & loan officer.
0 votes Thank Flag Link Sun Jun 5, 2011
What type of superficial, cosmetic repairs is the appraiser requiring? Usually repairs that are described like that are not required in order for the home to pass USDA requirements ... which are also the same as FHA's requirements, FYI, as the appraiser is required to put in a USDA appraisal that "The property meets HUD minimum property standards per HUD handbooks 4150.2 AND 4905.1".

Does it say that verbiage in your appraisal?

On page 2 of the bottom of the Uniform Residential Appraisal Report does it say the appraised value is "as is" or "subject to"?

If it is "as is", then the issue may be that the lender you are working with has "overlay" guideline that requires any appraiser's comments about some cosmetic items to be repaired.

Regardless of what it is, if it turns out that the repair is ultimately needed prior to you being able to close, and the bank isn't willing to repair it themselves, then you may have to negotiate to get the seller to permit you to pay & repair it yourself (don't just go in there and do it, it's not your home yet).

USDA only permits a "repair escrow" when proposed exterior development work cannot be completed because of weather and the work remaining to be done does not affect the livability of the dwelling. It requires the following conditions:

1. A signed contract and bid schedule are in effect for the proposed exterior work.
2. The contract states the work will be completed within 120 days.
3. The lender agrees to obtain a final inspection report and advise RD when the work has been completed.
4. The escrow account must be funded in an amount sufficient to assure the completion of the remaining work. 150 percent of the cost to complete is suggested, but the lender may require a higher amount if they deem necessary.

However not many lenders are keen doing those repair escrow hold backs, and even so, usually it's only permitted in the winter time where cold weather makes it impossible to do outside repairs/work (like painting, landscaping, etc.).
0 votes Thank Flag Link Sun Jun 5, 2011
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