Jb, Home Buyer in Methuen, MA

Failed title 5 in MA - How do I get replacement estimates?

Asked by Jb, Methuen, MA Wed Jul 27, 2011

As a buyer, I recently paid for a title five inspection that failed. This was expected. Every company I talk to wants engineer design plans (I was told this costs thousands) before they can provide an estimate. Is this normal? I know I'm probably going to need to escrow 1.5 times the estimate in order to close, but I'm really not interested in paying thousands of dollars for design plans for something that may never close. Does anyone have experience with how a buyer can get estimates for septic replacement without comitting thousands of dollars up front? The seller and sellers bank will not contribute anything to this. Thanks.

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23
Alexiskanee, Home Buyer, South Miami, FL
Thu Jun 11, 2015
You can certainly close on the property even with a failed Title V, and have a mortgage on your purchase. The bank however, will require you to have estimates for the replacement system, and then have you put 2X the replacement costs into escrow (which they will hold), and give you a specific time frame to have the new septic installed. The septic company will be paid by the bank from the escrow, and any surplus will be returned to you when the job is complete (and inspected).

Reference Link: http://titlecompanies.net/
5 votes
Marie Souza…, Agent, Centerville, MA
Thu Jul 28, 2011
JB - Being from MA & doing lots of sales here, we come across this same situation more often than not. You must be purchasing the house in "as-in" condition and/or the seller has already stated that they will not repair the septic to bring it up to Title V, correct? So if the septic is your responsibility, you do have options, depending on your lender. 1st thing to do is call them to see if they allow a holdback for a failed Title V. If they do, then you will need to obtain quotes. This is where your agent can really be worth their weight in gold (they should have septic people they deal with often). Yes, you will have to pay for engineering plans once you contract the septic install (usually part of the total price), but a septic company, who works with Engineers on septic designs ALL the time, should be able to estimate the cost of these plans & estimate the cost of the septic (it won't be right on, but in the ballpark). Then, once you feel confident the property is going to close, you can have the septic company prepare the estimate for your signature & go from there. So, start with a "ballpark" estimate to even see if the property is worth that extra financial investment as a Title V adds no value to a property because everyone expects to be able to flush.
3 votes
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Thu Jul 28, 2011
I agree with Andrew - every home I've helped someone buy in Mass. that had a Title V issue it is always required to be corrected prior to closing.

I am not sure how common septic companies need the engineer design plans - last time there was a Title V issue our borrower was able to get many septic quotes, I cannot remember if they had engineer plans to provide though.

These people are all way south of you, but you may be able to get some insight from them that can help with your local septic companies.

B & E Excavating in Manomet, MA
JD Mathias in Plympton, MA
James J. Schilling in Halifax, MA
Fred Nava & Son in Kingston, MA
2 votes
Barb Davis-H…, Agent, Pittsfield, MA
Thu Jul 28, 2011
A soil evaluation and perc test will tell you an aweful lot about the projected costs to replace the failed system. That investment will be minimal. A backhoe operator will charge you approximately $400/ for a 4 hr. period of time. A soil evaluator will charge approximately $300/for a 4 hr. period of time. Your local health agent may charge an hourly rate to witness the soil evaluation. You will know right at the testing of the soils if you have good enough soil to have the entire septic system entirely in the ground or whether you will need a mounded system which is a bit more expensive. An entire septic system that will be entirely in the ground should cost you in the $15,000 - $20,000 range. Once Title V sand and a pumping system are needed then the cost rises. Good
Luck!
1 vote
Andrew Adams, , 01915
Thu Jul 28, 2011
I would speak with your loan officer. The septic system is typically not a Minor repair and since the ground is not frozen arguing that the repairs cannot be made due to weather related issues will be futile. Doing an Escrow holdback will be out of the Norm. The septic could run you anywhere from 10K upto 35K depending on the site and plan complexity. In addition to close on a home in MA with a failed septic you would need a letter from the town stating that the septic although failed is fiunctioning. If it is not functioning the unit is not livable, and will pose additional issues during underwriting.
1 vote
Barb Davis-H…, Agent, Pittsfield, MA
Thu Jul 28, 2011
I would first make sure your loan was approved subject to a passing Title V (or in this case a Certificate of Compliance for the new system). Second, I would get all of your other inspections and contingencies met. When the only thing left to complete is the septic system estimates for the new system now you can invest your funds knowing you can close the loan. A perc test and design for the new system should cost you between $2500 - $4000.
Good Luck.
1 vote
Andrew Adams, , 01915
Wed Jul 27, 2011
You will need a renovation loan. This time of year a bank is not going to close a conventional loan with the septic unless it's a renovation loan. By going with a renovation loan you will know you will close. You will need to set aside more for renovatoin need the full plans but it's done all the time.
1 vote
Jonathan.Gai…, Home Buyer, Chicago, IL
Fri May 17, 2013
What happen when a broker or bank closes before the septic inspection is done when it was required in order to close on a Fha Loan.
0 votes
Andrew Adams, , 01915
Wed Nov 30, 2011
JB,

My original post stands with renovation financing 203K you can in fact close without board of health approval. You need to have a plan and an estimate for the instalation, but approval can take place after closing. I have closed several this way.
0 votes
Jb, Home Buyer, Methuen, MA
Wed Nov 30, 2011
This is how my situation turned out.

1. To answer my original question, it is possible to get ballpark septic replacement estimates. Some companies will even put you in touch with their engineers, where you can go over various issues that may factor into the ultimate cost. However, such companies are few and far between. If you want this for some reason, my recommendation is to call the town's Board of Health, get a complete list of all companies licensed for septic replacement in the town, and then start going down the list. I had maybe 3 out of 20 that would provide this ball park estimate on paper and all said something to the effect "subject to change based on final plan approval".

2. Don't waste your time with #1. I was not able to secure financing without replacement plans approved by the Board of Health. I am confident I would have secured financing had there been approved plans on file even without the actual replacement work being done. The loan officer I was working with assured me that escrowing 1.5 times the replacement estimate would be acceptable for securing the loan. However, there was miscommunication between us. I didn't realize this was under the assumption that approved plans were on file, and he didn't realize that no such plans existed and the estimates were only ballpark. No one I talked to from septic companies or at the Board of Health made me think 1.5 times the highest estimate wouldn't be beyond sufficient, but I guess I see why no one would lend on such a property.


In the end, it didn't work out for me. It does seem possible to close on a property with a failed title 5 as long as the buyer or seller with get approved plans on file with the Board of Helth. Without them, it seems impossible.
0 votes
Marie Souza…, Agent, Centerville, MA
Thu Nov 17, 2011
JB - What ended up happening? I see people going back & forth on your question, but am curious as to what actually happened?
0 votes
Andrew Adams, , 01915
Sun Nov 13, 2011
Chris,

They are ideas. Pointing out they carry real risk. Every attorney I have spoke to about a buyer doing repairs prior to owning have the same reaction...bad idea!

Most realtors have a negative attitude towards renovation financing and try and find ways around it. I would embrace it as it is only becoming more common.
0 votes
Christopher…, Agent, Methuen, MA
Sun Nov 13, 2011
Thanks Andrew. I'm not disagreeing with you and renovation financing is definitely a good option. I was simply throwing out a few other ideas to consider such as considering town sewer if possible and I recommended consulting with an attorney. Neither of which is bad advice. Have a great day and go Pats!
0 votes
Andrew Adams, , 01915
Sun Nov 13, 2011
A lien on a property...with all the short sales taking place! What are the odds on that lien getting anything if they are not able to sell the property to cover all the liens?

The best way to handle repairs to a property if the seller cannot make the repairs prior to closing are through renovation financing. Any other option is extremely risky! Not to mention as a buyer I would rather be in control of repairs. Things can get repaired on the cheap or the right way...Seller is more likely to make the repairs on the cheap rather than make sure it is done the right way!
0 votes
Christopher…, Agent, Methuen, MA
Sun Nov 13, 2011
Andrew. I agree that it is risky. I'm not an attorney, but perhaps a lien on the property or a surety bond? Getting the seller to agree to an arrangement that would protect the buyer is another issue altogether especially if the seller is a bank. It is possible to reduce risk (in theory any way).
0 votes
Andrew Adams, , 01915
Sun Nov 13, 2011
Chris,

Not possible to protect someone making repairs prior to closing from loosing the funds they spent for repairs. What happens if the borrower failes to get financing! Pretty sure the seller won't be paying the buyer back!

Sinking money into a property you do not own is risky business!
0 votes
Christopher…, Agent, Methuen, MA
Sat Nov 12, 2011
JB another thing to consider is removing the septic system and using town sewer if it is available on the street of this home. I live in Methuen and still have a septic system. If my system ever fails my plan is to tie into town sewer because it is available on my street. You may have already worked this all out or moved on, but if you are willing to pay for the repairs before closing have your attorney draft up your contract to make sure your investment is protected. I'm sure there is a way to work it out. I'm curious how you made out. Let us know if you can!
Web Reference:  http://teamlefebvre.net
0 votes
Andrew Adams, , 01915
Thu Jul 28, 2011
JB,

If you need a renovation loan or want to explore it, I am also local and specialize in Renovaton Financing no need for waivers, no need to delay closing or be creative. I would not want to sink the money into making repairs until I owned the property myself. The more expensive the repairs the more against that I would be.

I closed 7 Renovation loans this month with most closing in under 45 days.
0 votes
Scott Murphy, , 01876
Thu Jul 28, 2011
When buyers and sellers are motivated to get a deal done, then usually something can be worked out. Where there's a will there's a way. So long as the law as followed and everyone is comfortable with the arrangement, it may be possible for you to pony up the funds to fix or replace the septic prior to the closing. It's risky for both parties, but if you're willing to pony up, it can likely be worked out. Do all your homework with estimates, financing and legal provisions first, of course, as most of the risk will belong to you. You'll want a couple of work estimates, a financing commitment with all conditions worked out minus the septic, and then a legal document drawn up. And you'll want it all before you put forth any money and the sellers will want it all before they'll let you dig up their lawn. Look before you leap.
0 votes
Jb, Home Buyer, Methuen, MA
Thu Jul 28, 2011
Thanks again for the continued advice.

My agent has been helpful in the matter where possible and forewarned me of risks and costs associated with a suspected septic failure, but it is not a situation that everyone seems to have indepth experience with. I don't mind researching the situation some on my own as I've found it to be an educational experience. Anyway...

As a first time buyer, I don't have a great understanding of closing properties in general, but what I'm confused on at the moment is how as a buyer I could resolve the issue before closing if it turns out that really is needed. How exactly (or why rather) would I contract the work and pay for the work before closing?

Thanks.
0 votes
Scott Murphy, , 01876
Thu Jul 28, 2011
This is right in my wheelhouse. I see this all the time on the lender side and I'm local.

Failed septic systems are a common issue this time of year. This year the issue is epidemic due to the five plus feet of snow we had this past winter. A whole lot of water went into the ground and many septic systems are still full. Some septic systems are not malfunctioning, but are merely hypercharged due to the water levels. Same result though. Pumping the septic system only removes the solids BTW, but water levels will remain high.

The City of Methuen Board of Health will know who is approved to do the work. Give the city a call and then you can call their approved peeps. While you're talking to the city people, you may also inquire as to whether getting a Title V waiver is an option.

Some things you should know...

Typically lenders don't allow for an escrow holdback for Title V during warmer months. That's typically done during the winter when the ground is frozen and the work can't be performed. That work may need to be done before closing. If town water and sewer is coming to the area within the next few years you may be able to get a waiver on the Title V and then you'll need a lender who will accept the waiver.

HUD will not insure the loan with a failed septic, so FHA financing is off the table. And Fannie and Freddie investors shy away from failed septics too unless there is a waiver. And even with a waiver in hand you'll still need an investor to buy the loan. You'll likely need a lender who doesn't sell to Fannie or Freddie investors and instead holds the paper in house. There may not be a market for it and it may need to be fixed prior to closing.

So, in summary, call your lender and find out if they'll finance the property with a failed septic or if it needs to be fixed or replaced before closing. If it needs to be fixed or replaced before closing, you'll then need to decide who's willing to pony up the money - you or the sellers. BTW, typically your agent or the listing agent is on top of this stuff. Where are they and what have they recommended?

I'm a local lender and I can probably help you out if you get stuck. Save my number 781-258-1293 and give me a call if you need me. Good luck!
0 votes
Jb, Home Buyer, Methuen, MA
Thu Jul 28, 2011
Thanks for the responses. I'll talk to some more companies to see what they say. Yes, I am purchasing the house "as-is" at an approved short sale price. Neither the seller nor the seller's bank will pay any additional costs.

A couple additional things:

1. The article linked below and other articles I've read suggest that plans are needed for a reliable estimate. If for instance an issue comes up with the soil during design approval, costs can increase substantially over the original estimate. Maybe companies that do enough work in an area feel confident no major issues will arise during design approval, but I'm having trouble tracking such companies down. If others have had success getting estimates without plans, I'll keep looking. At this point, paying for the design plans and plan approval fees seems necessary, but I don't see how that would be a smart investment unless I'm sure I'll be able to close on the property.

2. Andrew mentions that I'll need a renovation loan. I have sufficient cash to escrow whatever the replacement estimates turn out to be. Most articles I've read online say this should be sufficient as does the article linked below. I'll double check with my mortgage broker, though, to see what guidance he offers.

Anyway, if anyone has additional advice, I'd appreciate it. Thanks.
0 votes
Louis Wolfs…, Agent, Needham, MA
Thu Jul 28, 2011
Great article regarding septic systems by Bill Gassett

http://www.sellmyhomeinmetrowestma.com/Title_V_Septic_System…

Soil conditions, bedroom count are typically what will determne the size and type of system that will be required. Ask the local health dept about your specific location they will be most familiar with what you may expect.


Good Luck
0 votes
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