Question Details

Doug, Home Buyer in Walnut Creek, CA

Inspection Contigency Timeline

Asked by Doug, Walnut Creek, CA Fri Mar 21, 2008

The seller agreed to fix several problems, and apparently it's being worked on right now. However, loan docs need to be signed next week so my question is it normal for loan docs to be signed before I confirm that everything that was agreed to be fixed is actually fixed? What happens if there is something remaining that needs more time to be fixed?

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Hi Doug. I am glad you got the answer you were lookng for, but I want to clarify one thing. You stated in your reply: "I now understand it can be addressed by having them credit back a certain amount, or delay the closing until they do fix it. In my case there is no loan contigency so that's not an issue." j

Holding money back in escrow usually works like this: You and the seller agree to a certain amount to be held back and the money is released to the seller once the escrow officer receives notification that the work has been finished. Thus, the money still goes to the seller, it just does not happen at the close of escrow. Unless the escrow instructions specifically say that the money be released to the buyer if the work is not performed within so many days after the close of escrow, the money will not be automatically released to you, the buyer. It will just sit in escrow until an agreement about the disposition of the money has been reached. That's why it's important that the escrow instructions state what happens with the money that is held back in the event the repairs are not finished within the agreed upon time after the close of escrow. The reason why I stress this is because you used the word "credit" and wanted to make sure that you undersand that a holdback is not the same as a credit.

You could agree in writing that you be credited with an amount of money that it will take to finish the repairs. If you and the seller agree to a credit in lieu of repairs instead of a holdback, then you esentially agree that the seller does not have to finish the repairs and that you'll get a buyer credit. Again, when it comes to buyer credits, you have to be certain that the lender is ok with it as each lender has different rules about buyer credits.

As you said, there's a good chance that everything will work out just fine and you just wanted to be prepared for the worst case scenario. I hope everything will work out for you smoothly.
1 vote Thank Flag Link Sat Mar 22, 2008
Ute Ferdig -…, Real Estate Pro in New Castle, DE
MVP'08
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Hi Doug:

First, the contingency period is really defined by your contract. The CAR form default the period ot 17 days but you can always override the number of days for the period' so you really shoulc check contract terms to determine how many days you have to remove a specific contingecy.

Loan contingency removal is different from inspection removal. Each serves it's own purposess, one is for loan and the other is for inspection. You remove them independent of each other. Usually if you request repairs by sellers, you probabaly said that it should be repaird prior to close of escrow and that's the condition for you to remove the inspection contingency. You don't have to close escrow until everything is repaired as specified on the agreed-upon request.

You can order the loan doc, howiever, you don't have to sign that loan doc until you are ready to close. Just make sure you still have the right loan term when you are finally ready to sign on the doted line.

Sylvia
1 vote Thank Flag Link Fri Mar 21, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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"You and the seller agree to a certain amount to be held back and the money is released to the seller once the escrow officer receives notification that the work has been finished."

What happens if the seller does not agree to fix it or provide a credit? Do I still have to sign the papers, and then sue? Or is there another option?
0 votes Thank Flag Link Mon Mar 24, 2008
In my case, one particular part of the fix that they agreed to do is not going to be done because according to their contractor it is not needed, which if indeed is the case, is fine with me. However, I am waiting until everything else is finished before doing the final walkthrough. At the walkthrough I will bring in a structual engineer to confirm what their contractor said. I guess I will know a lot more on Monday. Thanks.
0 votes Thank Flag Link Sat Mar 22, 2008
Hi Doug_

Sorry, i am not clear there. I am not suggesting you to sign the loan doc the day before escrow, I am suggesting you sign the loan doc with enough lead time to close escrow as specified in the contract and with enough knowledge that the repairs will be done ontime as it does take a couple of days (depends on the lender, timing and any other specific situatioin) to fund. .

As you don't need to live there for a while - sounds like you are in pretty good shape whether you get credit back, hold money in escrow, or postphone close of escrow until all reparis are done.

So, if it's me, I will probably postphone close of escrow until the repairs are done - then you don't have to pay the mortgage until the house is in the condition to be delivered.

But ultimately, it's your call. And from what you said, the sellers will finish everythiing agreed and usually they do because they do want to sell that house. .

Sylvia
0 votes Thank Flag Link Sat Mar 22, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
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"The lender can prepare the loan doc. Signing only takes an hour or two. I'd just wait until the repairs are done, or will clearly be completed before I walk down to title and sign that doc."

Although signing the loan doc can take an hour, the lender still needs a couple of days to get it reviewed. Let's say they finish the work a day before closing. Well, it's too late to sign the loan docs at that point to get it in by closing. I'm not going to be living there for a while so I don't care whether they repair, or credit back.
0 votes Thank Flag Link Sat Mar 22, 2008
Hi Doug:

That's why I don’t' usually recommend holding back money in escrow to ensure repairs are done; because the only thing is that you are holding some money (which is probably not gigantic compare to the purchase price in Walnut Creek) in escrow, but you will have to endure repairs being done while you live in the house. Then you will have to inspect the work done are to your satisfaction, sign the release form to release the money back to the sellers. Unless there is penalty involved for not finishing work on time, the incentive, to me, is not great.

I personally would either get a credit back at close of escrow for repairs (use my own contractor/handy person), or just make sure the sellers repair everything to my satisfaction before I close escrow and move in. Much cleaner that way.

Again, loan doc has nothing to do with repairs. The lender can prepare the loan doc. Signing only takes an hour or two. I'd just wait until the repairs are done, or will clearly be completed before I walk down to title and sign that doc.

But if you do need to move into the house at a certain date (maybe you are selling your house or your lease is up and you have to move), then I guess you will have to choose the credit back, hold money in escrow, preferably with penalty and go from there.

Best,
Sylvia
0 votes Thank Flag Link Sat Mar 22, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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Thanks for the followup. Since there are several ways of resolving this then I'm not really worried anymore.
0 votes Thank Flag Link Sat Mar 22, 2008
"If postponing the close of escrow is necessary because the seller did not finish the agreed upon repairs and postponing ends up costing you money, you may want to ask the seller to compensate you for the loss."

This is what I was looking for thanks. 99.5% chance that everything will work out fine, however I always assume the worst. In that case I now understand it can be addressed by having them credit back a certain amount, or delay the closing until they do fix it. In my case there is no loan contigency so that's not an issue.

It's interesting that your answer differs from the first two significantly.
0 votes Thank Flag Link Sat Mar 22, 2008
Hi Doug. It sounds like you have already conducted your inspections, submitted a request for repairs and the seller agreed to make certain repairs. Typically, you check during the final walk-through whether all the promised repairs were done and the final walk-through is usually done about within 5 days before the scheduled close of escrow date (that would be item # 15 of the purchase contract if you used the C.A.R. purchase agreement - most real estate agents use C.A.R. forms). I would say it's not unusual for a buyer to sign loan documents prior to the final walk-through, but typically, unless otherwise agreed in writing, all seller repairs are supposed to be done prior to the final walk through (item # 10 of C.A.R. purchase agreement).

In the event that the repairs are not finished prior to the final walk-through, money should be held back in escrow to ensure that the work will be done (you want to hold back enough money to pay a contractor to finish the work if necessary). Holding back money is something that needs to be done by mutual written agreement. Your agent should negotiate this immediately if he/she has not already done so as the closing agent cannot withhold funds from the seller at the close of escrow absent mutual written instructions. Holding money back in escrow is only an option if completing the repairs is not a loan funding condition. If the lender will not fund without all repairs having been completed, then the close of escrow date should be postponed (also requires a written agreement). If postponing the close of escrow is necessary because the seller did not finish the agreed upon repairs and postponing ends up costing you money, you may want to ask the seller to compensate you for the loss. Be reasonable and keep the big picture in mind.

I would ask the loan agent how long the loan documents are good once they are signed. Just because the loan documents are signed does not mean that you have to close escrow. You can go ahead and sign the loan documents and then the escrow officer waits to request funding until the completion of all repairs has been confirmed. Just make sure that everybody knows the applicable deadlines (e.g. how long are the loan documents good, what's your rate lock date?) and all extensions are in writing. Good luck with your close of escrow.
0 votes Thank Flag Link Sat Mar 22, 2008
Ute Ferdig -…, Real Estate Pro in New Castle, DE
MVP'08
Contact
I suggest you get all agreements in writing. In California you have 17 days to make all inspections and request for repairs approved before removing contingencies. I would not recommend you remove your contingencies until that is clarified. Good luck. Rita Harper SRES (760) 732-3213
0 votes Thank Flag Link Fri Mar 21, 2008
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