Home Buying in San Ramon>Question Details

Aster1, Home Buyer in 94582

who is responsible for section 1 repairs in shortsale?

Asked by Aster1, 94582 Mon Oct 25, 2010

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Aster1:

Typically the buyer pays AFTER close of escrow as long as a Section 1 clearance is not made a part of the transaction by your lender. We normally leave any reference to termite damage or inspections OUT of offers on short sales or REOs because of potential lender problems: if a lender sees any dialogue in an offer dealing with termite reports, they will usually want to see any reports and will demand a Section 1 clearance as a part of funding conditions. Since banks don’t normally pay anything, this can cause HUGE problems.

Here are a few more comments:

@ Chris Blasic: disagree – the sellers have no money to do repairs and banks WILL NOT make repairs in a short sale situation. They will foreclose first. Banks WILL occasionally make repairs to an REO, but never a short sale. As far as the listing agent having “funds” somewhere that could be diverted to take care of Section 1 damage – VERY unlikely. Everything has to show on the HUD 1 and we normally have to fight for every penny there, including our negotiator’s fee (if applicable). There is no gravy and if they see you trying to divert any of their funds to repairs (it has to show on the HUD 1), they will veto it.

@ Rhonda Fee: since banks never approve Section 1 repairs for a short sale, if the buyer’s agent asks for Section 1 repairs in the purchase agreement, they could be doing the buyer a tremendous disservice. When ANY dialogue is included in an offer about Section 1, the buyer’s lender is going to want to see any resulting termite report. If there IS Section 1 damage, it will need to be cleared by the buyer PRIOR to close of escrow as a funding condition. This is most certainly NOT a good idea. Most agents currently writing on an REO or Short Sale do not check any of the boxes in Section 4 that deal with termite damage, nor do they check any boxes stating that the buyer will pay for any reports. The right to obtain reports is still implied by the contract and it is assumed that it any reports are done, the buyer will be paying for them.

@ Terry Osburn: agree – if you do a termite report and it shows damage, then you can use it as a bargaining chip to try and get the approved short sale price lowered. HOWEVER … if the home is close to the auction sale date, this could complicate things VERY much – especially with Wells Fargo. It could bump it into the final 10 days in which Wells Fargo (as an example) may choose to foreclose instead of lowering the price and completing the short sale. In addition, since most banks want a VERY fast close on a short sale once they approve it, they will not like the idea of having to slow the transaction down by renegotiating the price. There are a lot of moving parts here …

@ Bob Georgiou: Agree with the FHA issue – IF it is an FHA loan, then a Section 1 clearance MAY be required (especially if it is very visible to the appraiser) – and typically, the buyer has to pay. This has frequently been a deal buster. This also applies if it is a VA, CalVet or CalHFA.
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1 vote Thank Flag Link Wed Nov 3, 2010
How I have addressed this issue in the short sales I have listed is this way....

I tell the buyer's agent upfront NOT to expect the bank to pay for repairs. HOWEVER if the buyers termite inspection shows damage higher than originally accounted for or estimated to be is to provide me with PICTURES of damage , 2-3 repair estimates from LICENSED contractors on their letter head and what we can do is resubmit and ask for a credit back and/or a reduction in price. Typically the sellers lender will allow for a credit in lieu of changing purchase price as it changes their books and original ratio of what the investor will let the home sell for and they have to go thru the whole process again of approving the short sale ....BUT it appears that they do have on the side and they will NOT tell you this, an amount that the investor will allow for credit in lieu of repairs.

I have done this with termite damage and with foundation and other structural issues on several short sales. It can delay things a little but it has worked. Both cash and loan buyers.

As long as the buyer understands the responsibility will solely be upon the buyer to perform any corrections or repairs post close of escrow there should not be any issues. Do NOT put termite specific repairs in your purchase contract.

If I am representing buyer I put buyer to pay for any and all inspections buyer deems necessary as a contingency.

I recently did this with a Newark short sale listing where the combined section 1 and two were approx $10000 and buyer came back and asked for $5000 credit towards the section one work. Buyer was fully prepared for section two responsibility but was not expecting the section one to be that much..

Remember in many cases work that needs to be performed can be done by any licensed contractor and usually is cheaper than the quotes from a termite company....HOWEVER you must use a licensed termite company to spray and/or treat for termites and pests.

I have never had a short sale lender do any corrective work.

Unless the appraiser calls something out , as stated below as long as termite is not made a contingency of contract you can usually work around.

It is a given that s short sale is basically SOLD in AS IS condition.
0 votes Thank Flag Link Mon Mar 19, 2012
As a lender, I have yet to see a shortsale lender pay for section 1 repairs unless the appraiser makes it a conditon of the value. What would make an appraiser ask for Section 1? Items that effect safety and health issues. For an appraiser to mention, it would have to be obvious. This condition would usully be where a cash buyer would be the only buyer who could overlook the condition.

Generally, you are going to be writing that contract as an "as is" purchase. Termite Report is not going to be mentioned in the contract or will be reference "for informational" purposes only.
0 votes Thank Flag Link Mon Mar 19, 2012
Aster1,

Losts of different answers here. What I can add is that it really depends. It depends on the type of buyer financing (Conventional - now work is an option, FHA work must be performed in some cases), The bank, the quality of the underwriter, and the investor behind the loan and their willingness to wheel and deal. The last thing is the quality of the agents, seller and buyer.
Web Reference: http://bob2sell.com
0 votes Thank Flag Link Tue Oct 26, 2010
It really all depends on the extent of the Section 1 damage, how desperate the seller is to sell, how badly the buyer wants the house, and if the Section 1 items are safety/hazard issues that the short sale lender may be inclined to approve.

I would be very surprised if the short sale listing agent advised his seller to agree in the contract to repair Section1 items

In my closed short sale transactions, I've only had one seller agree to do SOME of the Section 1 items that he could handle himself, and only because he was desperate to keep this sale on track after his first buyer backed out.

I've only had one lender agree to do a Section 1 repair only because it was a severe safety/hazard issue.

Buf in most short sales, sellers would want an AS IS transaction since the reason why he's doing a short sale is because he's short of funds.
0 votes Thank Flag Link Tue Oct 26, 2010
Hi Aster1:

Simple answer is that it is all about how the contract is written. If the contract says the seller is responsible and the bank approves the contract as written, then the bank will end up paying. More often though, the bank will not approve that, so if the buyer wants Section 1 repairs taken care of prior to close of escrow, then the buyer will hav to pay.

Bernard Gibbons

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Bernard Gibbons, J. Rockcliff Realtors
DRE License # 01331583
Phone (925) 997-1585 - bernard@bernardgibbons.com

http://www.BernardGibbons.com
0 votes Thank Flag Link Mon Oct 25, 2010
Hi again Aster1,

I have been involved in several short sale transactions. Every time there is section 1 repairs required the listing agent has had the money somewhere in the approval to cover it if the buyer could not. Maybe not with money that is specifically dedicated for that reason but most good short sale listing agents will have money set aside somewhere in the approval to get it done if it is a deal breaker. Make sure you are working with an agent who has experience with short sales.

Thanks again
good luck
0 votes Thank Flag Link Mon Oct 25, 2010
Most have answered your question and that is the seller has no monies for repairs in a short sale and the lender typically will not pay for those repairs.
You can always go back and submit a request for such in particular if any address health and safety items. Typically they will reduce the price in lieu of repairs. Or if the house will have to be tented. They understand if the home goes back on the market that will be disclosed to the next buyer.
The best route to go if you suspect there is major damage on a home you like is to have an inspection up front and /or a licensed contractor walk the home with you PRIOR to putting in an offer. Then what you can do is have the licensed contractor put on their letterhead an itemized statement of repairs and costs and take pictures and have the listing agent send in with the purchase offer.
If the banks have that info up front they are more likely to work with you on reducing price or credit back.
I have had two occasions as listing agent where both times the section one came out higher than what was anticipated and one lender allowed credit to the buyer for the repairs and the other lender reduced the price .
It really depends upon the investor involved.
0 votes Thank Flag Link Mon Oct 25, 2010
Hi Aster1,
For the most part each short sale can be completely different from the next. Different banks have different guidelines to follow. It is your right to have your agent ask for Section I repairs, it is also your right to walk away without losing your deposit as long as you are within the contingency period should the bank reject your request for repair. There is not a cookie cutter answer for this question. What one bank may agree to, another won't even consider. The best of luck to you!
Web Reference: http://www.rhondafee.com
0 votes Thank Flag Link Mon Oct 25, 2010
Most short sales are strictly "as is". Typically, the seller does not have the money to pay for the repairs. The bank wants an "as is" sale. Therefore, the buyer is responsible the vast majority of times. Keep in mind that normally the buyer has the opportunity to conduct inspections, and most short sales contracts are subject to the buyer's inspection of the property, so if there is a large Section 1 bill, the buyer is not obligated to do the work. They can request that the bank compensate them for the repairs, and if the bank says no (a common occurrence) the buyer can simply cancel the contract as part of the inspection contingency.

On rare occasions the bank may agree to the repairs, but it is not the norm.

You can get more information on this and other topics on The 680 Blog at

http://www.680homes.com/blog/

I hope that helps

Doug Buenz
The 680 Group at Alain Pinel Realtors
(925) 463-2000
Web Reference: http://www.680homes.com/
0 votes Thank Flag Link Mon Oct 25, 2010
In most Short Sales, there is not any money from the sellers- very rarely will the Bank pick that up. Most Short Sales are "as-is"

Good luck!
0 votes Thank Flag Link Mon Oct 25, 2010
Short sales are usually strictly AS IS sales. Section 1 repairs are negotiable, but my experience has been that in short sales the lenders have not been willing to pay for them (in contrast to foreclosures, where Section 1 repairs frequently are paid for by the bank).

Good luck!

Will Bateson, Broker
Sidewalk Homes
CA$H BACK! when you buy
925-455-0845
will@sidewalkhomes.com
0 votes Thank Flag Link Mon Oct 25, 2010
Hi Aster,

Normally the bank will cover it if requested by the buyer in their offer but it can be negotiable.

Thanks
Chris Blasic
0 votes Thank Flag Link Mon Oct 25, 2010
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