Home Buying in Staples>Question Details

Short With S…, Home Buyer in Staples, MN

Septic failed on short sale home. Seller likely will not help with cost. How can this info be leveraged to the bank? How does this affect my offer?

Asked by Short With Short Sale, Staples, MN Thu Dec 8, 2011

I have already put an offer (92,000) on the home. I needed to get a septic inspection to determine financing options. The system failed. The report is not yet filed with the county. It will cost about $5500 to repair. I am wondering how this can affect my offer at this point both negatively and positively. Will the bank be on the hook for the repair if it goes to foreclosure? What is the likelihood that they will put money forward to help with repair (Chase Bank)? The seller has no money to put forth for anything so that option is out. If I submit the inspection to the county, the seller would then be forced to bring the system to compliance. I am not sure how this will affect my chances of closing the deal on this home. The value of the home may likely come in at 110-115,000 if everything were move in ready which it is not. The current owner owes 115K. The home needs carpet, a roof in the near future etc... Not sure if the bank will consider this. Any opinions??

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As someone that has done real estate closings in the real estate industry, if there is a septic needing replacement, at least in MN, your lender should REQUIRE an escrow of one and 1/2 times the highest bid if it is not feasible for the seller to take care of it before the closing, due to the season, road restrictions, etc. It is something you may want to include in the negotiations. We had a mound system put in in 2010 and it was over $8K for the lowest bid.
0 votes Thank Flag Link Fri Mar 29, 2013
The bank will not be on the hook if it goes to foreclosure. The home will be sold as is. There is very little chance they will pay for it while a short sale either. I assume that you are taking a mortgage on this home. If your offer of 92000 is accepted and the home does appraise at 110000 it is possible that your lender would do an escrow hold back which would allow you to finance the septic repair.
You could look into an FHA 203K loan also.

0 votes Thank Flag Link Thu Sep 13, 2012
Whether you bring the inspection to the county, or not, it will come up somewhere along the way. With this revelation, you may back out of your contract using your inspection addendum, or ask for seller concessions, or escrows to pay for septic repair. $5500 sounds like a good deal for a whole septic system.

Your agent should be able to help you with this dilemma. If not, look me up. I'll work with you in Staples, just a short drive from Hutchinson.

Good luck
0 votes Thank Flag Link Wed Dec 21, 2011
Hi short with short. All areas of the country are different regarding Septic systems. In my area of Pennsylvania, it comes down to the township/borough and county on requirements. Most short-sale lenders want to sell the property "AS IS", and prefer not to do any repairs. However, this is a serious component of the property and in my area it would now be a disclosed defect which all future prospective buyers would need to be informed.

Replacing septic systems are very costly and in our neck of the woods it would be double or triple the amount you're being told. Best advice is to get as many quotes as possible. Especially in this economy, companies that want the business will work with individuals to get the business. Negotiate or have your representative negotiate this in your offer with Chase. Also some mortgage companies may require a working septic system as a condition of receiving the loan. Most sellers will receive Nothing or up to $3,000 in moving expenses so they usually have no money and are devastated about the process. Plead your case to Chase, as long as you are well qualified with nothing to sell that is the type of buyer these short-sale lenders want.

Best of luck to you,

Rob Hughes-Long and Foster Real Estate INC.
0 votes Thank Flag Link Fri Dec 9, 2011
The bank usually doesn't act on things like carpet or an item that will need a future replacement but they will consider giving a credit for a major repair that was not discovered until after the offer/contract. They still have to either accept or counter your offer and then take it from there. Some areas will not allow a home to go to settlement if the septic system has failed inspections. Your Realtor should be able to answer that for you. Hope it works out!
0 votes Thank Flag Link Thu Dec 8, 2011
The Bank SHOULD make an allowance for the Septic repair, because it is a pre-existing Heath and Safety issue.
I'm not an expert on Septic Systems, but I have been there:
I question the $5500!!!
I cannot imagine that kind of a bill; I would suggest multiple quotes. The Bank will probably require them.

Good luck and may God bless
0 votes Thank Flag Link Thu Dec 8, 2011
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