Lender insisting on de-winterization for appraisal. Who's liable if the entire home gets flooded?

Asked by maplemale, Aurora, CO Mon Feb 4, 2013

This is an REO in Denver CO. I'm the buyer and we've already completed our inspection without de-winterizing. The house is as-is, so I didn't care if there were leaks. If I have to replace all the plumbing, that's not a deal breaker to me.

However, the lender is demanding I de-winterize the place for the appraisal. My question is, who's liable if the entire house floods? I'm fairly confident there will be leaks because they missed a sink during the winterization and it has water in the lines. I'm half expecting the basement (where the missed sink is) to flood in which case, i don't really want the house anymore. But, we are passed our inspection date. Regardless, if the de-winterization company floods the house, I'll want out and I don't care about my measly earest money. That's nothing compared to the $20k in damage they will do if they just turn everything on willy-nilly. Am I liable if that happens? ie. can Fannie Mae / remax (the seller/agent) come after me for damages?

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Scott Godzyk, Agent, Manchester, NH
Sat Feb 9, 2013
the key you did not mention if you were responsible for finding someone and paying for the de-winteriazation... if so yes you or you and the plumber putting it on would be. A plumber can test the system with air before turning it on and know near exact where the leaks will be and fix before turning on. The house should not flood if done properly has te emain is truned on, the house should be turned off at the main then open each section uo seperately with teh faucets on. Soemone should be turning the shut offs on and some standing by the main for a quick shut off of the system if they find leaks. NOW on the other hand if the listing agent OR a preservation company is in charge of the de-winterization and you are just paying for it then the company doing the work would be responsible. If done right there should be no flood, if done wrong look out.
1 vote
No, the sellers were selecting the de-winterization company.

This is all excellent information and by far the best answer. Kind of figured out this is the way it worked late in the game which is partially why I decided to go along with it. Ie. if the de-winterization company didn't do their job, the sellers selected them anyway and you're right, there would be no flooding if they do it properly. If they don't, that's not my fault.

This is the best answer for sure. Thank you!
Flag Fri Feb 22, 2013
Sean Dougher…, Agent, Fort Collins, CO
Mon Feb 4, 2013
You will be liable if you de-winterize and the home gets damaged. You probably signed a form when you put the property under contract that states that you're liable to de-winterize, if required. Plus, there's a clause in the contract that you are liable for any damage done by any of the contractors you hire to inspect or do work in the home (de-winterization).

I understand your lender wanting to see if the water lines work in the home before they lend on it, as they probably will not lend on the home if they don't work.

Best of luck, and you really should be working with your agent on this - he/she should have the experience to have recommended that you inspect with the home de-winterized in the first place.
1 vote
I think you're right and I now I feel like my agent should have informed me that this could happen and that an inspection should have been done with power on. Never the less... shame on me for not reading thru the docs carefully.

I did the inspection myself and I charged the lines with air because I had no intention of turning stuff on yet without doing some additional updating of the water lines. There were no leaks, but then there have been some very cold nights since then. I am a contractor and I generally do a better job than most inspectors. Maybe not though since I had no idea this scenario could play out like this? Oops...

So, I see worst case scenario, there is damage to the house and I will basically be forced to buy or pay to repair it, but the bank won't give me a loan because of the damage / non-working utilities/lines. So, basically I'll just have to pay out of pocket to repair it all. Sound about right?
Flag Mon Feb 4, 2013
You're right... I just went back thru the 65 pages in my contract and it does look like there's a waver in there.

Not sure I understand the lender wanting the water lines to work though. I already requested they just appraise it as if they didn't work (I'm potting 20% down anyway). But, they said no way and they will not do any appraisals without service being on. Maybe I'm not working with the best lender?

Thanks for the info!
Flag Mon Feb 4, 2013
Matt Overbee, Agent,
Sat Jun 28, 2014
Hello maplemale, just curious which lender you're working with that will do the loan based on a plumbing inspection report (air test). I'm having trouble finding one that will take that instead of having the water turned on.
0 votes
Ed Beck, Agent, Boonton, NJ
Thu Feb 21, 2013
I'm curious as to how this played out over the last few weeks. YOU should't be able to do anything, you don't own the place. If the place needs to be dewinterized for the appraisal, you should be requesting that the seller dewinterize for appraisal. It should be up to the seller whether or not they want to. They should know the condition of the house, whether the plumbing froze or not, and if so, they should deny your request. Certainly if the heat is not working, they will not agree to dewinterize. I know here that the banks don't let any buyer do any winterizing or dewinterizing or repairs of any kind.
0 votes
I hear that! Hey, you know, cash is king. I'm still so surprised they 'let' you do anything prior to closing. Glad it worked out for you. Maybe next time, find another lender!
Flag Wed Feb 27, 2013
Decided to be more compliant than I probably should have been. :) Sellers required I put all utilities in my name, request activation of service & expressly stated any damage would be on me. Although they selected the de-winterization company. I'm working with my lender so our next REO purchase can be appraised with a plumbing inspection report (charged w/air) instead of turning it on & hoping for the best.
I got lucky this time & everything in the house worked beautifully. But I won't take that risk again. Our lender has been great in every way but hopefully next time we can figure out a way to do the appraisal with water off. Now that I know how it works, I’ll be insisting on that ahead of time. Maybe cash is just the way to go with REO’s so as not to deal with this stuff. Every few years I do this, and each time the financial & insurance firms get more and more ridged. We looked at a lot of cheaper houses in our cash range. But, I just couldn't turn down the mid 3% rates! :)
Flag Fri Feb 22, 2013
Julie Montgo…, , 80238
Thu Feb 21, 2013
I would follow your lender's advice. There is NO reason to take that big of a risk. Julie Montgomery, RE/MAX Masters, Inc., Greenwood Village, CO. http://www.jmontgomery.com
0 votes
What advice? The lender is the one requesting the appraisal be done with water on to cover their risk factor. They have no advice other than: You have to do this or we won't finance it.
Flag Fri Feb 22, 2013
Robert McGui…, Agent, Denver, CO
Sat Feb 9, 2013

I like Suzanne's answer below. Speak with your Buyer's Agent and have him ask the listing broker about this. Also have your agent draft a letter saying you have been remanded to do this against your better judgement and will not be held liable for any damage. Agreements and emails help to hold you 'harmless'. Banks often ask for strange and sometimes meaningless requests. Just do it and protect yourself in the process. all the best.

Robert McGuire ASR
Your Castle Real Estate
Direct - 303-669-1246
0 votes
All good advice. Thank you!
Flag Fri Feb 22, 2013
Cory Fitzsim…, Agent, Golden, CO
Mon Feb 4, 2013
Talk to your agent! If you don't have one then this is the exact reason you should. Read the contracts and don't do anything you are not comfortable with. Angie is correct, contact the same company that winterized the home. Good luck.
0 votes
Seems like because I ask the question, you are assume I don’t have an agent – because every agent knows everything? Yes, I have an agent. He had similar suggestions which aren’t helpful. Thus the reason I’m here. The winterization firm is a “land and water” consulting firm in NY which doesn’t provide the name of the local winterization company to anyone, not even the seller’s agent or Fanny Mae and they won’t select a company for me etc.

I have to poke fun at your suggestion “Don’t sign anything you aren’t comfortable with”. If we all took that advice, we’d all have to become Amish. 
Flag Wed Feb 6, 2013
Angie Dziurg…, Agent, Denver, CO
Mon Feb 4, 2013

Are you purchasing a HUD REO? If so, ask your agent to contact the Field Maintenance Company assigned. They may be the ones who winterized the property, and you may be able to speak with someone who has information about the property(plumbing).

If your lender is requiring you to do what you deem to be "unacceptable", then your earnest money should not be at stake as long as you are within your loan conditions deadline. Again, talk to your agent. Procedures and dates are different based upon the type of loan you are acquiring. If you cancel a HUD contract based upon failure to get approved funding, then you should be able to get your earnest money back as well.

I am not aware of any way to avoid the liability if you are dealing with a HUD or REO. If you are required to provide the de-winterization (and usually the re-winterization), make sure to attend and hire a reputable company!
0 votes
FYI: Not a HUD. Just a REO from Fannie
Flag Mon Feb 4, 2013
I didn't realize I could attend. Just contacted my agent, I am definitely attending now. Thank you!
Flag Mon Feb 4, 2013
Suzanne MacD…, Agent, Morristown, NJ
Mon Feb 4, 2013
I would insist on a 'hold harmless' agreement. Talk to your attorney about that, basically it says that if you comply with the bank's demands and de-winterize the home so the appraisal can be done and the loan can close, the bank will agree in advance not to hold you responsible for any damages that ensue. An attorney can explain it better and draft the agreement for you.
0 votes
Ya, there's no way Remax is going to sign that. They'll let it go back to the bid/offer system before they signed anything like that.
Flag Mon Feb 4, 2013
Suzanne, we do not use attorneys here in Colorado as prevalently as you do in NJ. I also don't believe that the REOs owners here will sign a hold harmless agreement. Our contract states that if you or your contractor damages the home, whether or not you complete the sale, you will be liable for the repairs.
Flag Mon Feb 4, 2013
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