My lender wants repairs on the house before closing, but the seller says the property is As-Is. What are my options?

Asked by Justin Norris, Lawrenceville, GA Tue May 3, 2011

I don't feel comfortable paying for work on the house before it is legally mine. Funding for the repairs is not an issue. My bank has refused escrow accounts to cover the repairs after closing and insist they must be done prior. I feel very confident about the property and the repairs are minor. What should/can I do? Thanks.

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11
pulgan, Home Seller, Englewood, FL
Fri Apr 15, 2016
If it is a great deal or you want it and the owner is being honest about the condition of the house, I would go for it. Of course get permission from the owner prior to any repairs being done. As a precaution, I would consider waiting for all other inspections required by the bank to pass before doing the needed repairs. I am familiar with Lawrenceville and you can get away with doing what you feel would work out. Atlanta would be a different story and you probably understand what I am saying. In California or Florida I would be hesitant because of insurance and law suit potential. In parts of Arkansas a handshake is still legal. People from other areas are confused when they are held legally for their word. I have also seen where people were so careful in hiring Attorneys and getting the paperwork perfect and they still got screwed. Amazing how a piece of paper became so important. When England first came to America they really didn't own the property and simply made up a document and it has been considered legal ever since.
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Scott Godzyk, Agent, Manchester, NH
Wed May 4, 2011
This should have been addressed prior to making an offer, simply knowing what the bank requirements were and walking through ior inspecting the house prior to making an offer can assist in eliminating problems like this, at this point if they are requiring it, you need to either request the seller to make the repairs or be prepared to withdraw or have to complete the repairs prior to closing, if you have committment and this is the only contingincy you should feel more comfortable, it is how bad to you want this house.
Web Reference:  http://www.ScottSellsNH.com
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, ,
Wed May 4, 2011
Justin,

This is a common question in today's market. Here are several options you may want to consider:

- If you are obtaining FHA financing, there are plenty of lenders that will allow up to a $5000 repair escrow on a property. This means you can close in the as-is condition and then the lender holds back an escrow equal to the approximate repair cost plus 10% for cost over runs. Your contractor gets their money once the repairs are complete and an appraiser documents that the repairs are sufficient.

- Have the seller make the necessary repairs in advance of closing while you increase your earnest money by the amount of the repair. This way the seller knows he will be reimbursed for the repairs if you back out and don't close.

- Fix the repairs yourself. Many sellers and listing agents may not let you do this and as you stated, you are fixing a home that is not technically yours yet. But if the repairs are truly minor, say less than $1000, then the cost of the appraisal you likely paid for and your home inspection are costs that roughly equal cost of repair.
So if f this sale were to fall through you are out an equal amount of money.

Timothy Brown | Senior Loan Officer
Academy Residential Mortgage, Inc.| tbrown@academyresidential.com
11380 Southbridge Pkwy, Suite 200 | Alpharetta, GA 30022
678.468.5626 x110 | fax 678.935.1156 | cell 678.467.9959
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Christopher…, Agent, Tarrytown, NY
Wed May 4, 2011
Hi, It depends on how extensive the repairs are. I would have the sellers agent discuss this with the owner and see if you can come up with a solution. this type of stuff happens quite often these days because the banks are getting stricter. I'm not sure if you are getting a special type of loan already or regular conventional financing but if it is a special loan they tend to be stricter. Hopefully for your sake the repairs are something that any bank is going to ask to be done because the seller will encounter this again. It makes sense for them to just do it and not worry about them coming up again.

Chris
Web Reference:  http://raveis.com/chrispagli
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Russ Garmon, Other Pro, Norcross, GA
Wed May 4, 2011
Insure with your lender that you can get the funds to close, you indicate the repairs are minor, do them and move on.
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, ,
Wed May 4, 2011
LOTS OF OPTIONS here Justin.

DON"T just go to a 203k. Depending on the scope of work required, you could use our Repair Escrow loan, where you can finance up to 5K in repairs, in a STANDARD loan. If significant repairs are needed, we have a dozen other products and will find the one that best fits your need.

IF you do need a 203k, no one does them better and for a more reasonable price.

Please call me directly,
Thanks,
b
Web Reference:  http://www.203kworld.com
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Suzanne MacD…, Agent, Succasunna, NJ
Wed May 4, 2011
You need ah FHA 203k loan. This product does exactly what you want, escrows money for the repairs AND the purchase of the home. You don't specify what the repairs are, but if they are not structural in nature, and the cost is less than $35,000 you can get an FHA 203k streamline loan which simplifies the process. If you don't qualify for FHA for some reason, Wells Fargo has their own renovation loan that may be able to help you.
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William M "M…, Agent, Suwanee, GA
Wed May 4, 2011
Justin... Ken Cook Gave you great advise. Look into an FHA 203k Renovation loan.
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Monir Mamoun, Agent, Denville, NJ
Tue May 3, 2011
Maybe you can compromise. Tell the seller that it will be as-is in terms of not requiring any effort from him. See if he will allow you to post a discount on the property pending your repair and sale -- an escrow from him.

If that does not sit well, go for a 203k rehab loan and find a new lender.
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Darrell Hess, Agent, Asheville, NC
Tue May 3, 2011
Hopefully you are working with an agent to help with this negotiation. It is hard for us as agents on this forum to help you in any way with this but here are my thoughts. I find it odd that the lender will not allow escrows to close on the loan. I have a couple of questions for you though.

1. Is it your personal bank you decided to get the loan with and are you getting a mortgage to purchase or is this some form of personal lending or credit you have with them?

2. Who is the seller? (I'm assuming a bank or corporate owner)

Not sure how far along you are in this process of getting a loan, but you may be able to find a new lender who will allow repair escrows. You may have to do an amendment to the purchase and sale agreement since you may be changing the terms of the accepted contract, i.e. your financing contingency.

Depending who the seller is just because it is an "as-is" sale does not mean the seller will not do necessary repairs to close the loan. Obviously this depends on who the seller is and what type of financing you went binding with. Several deals I did last year and this year that were as-is did repairs in order for the loan to close, but it was because the lender required them and not because the buyer wanted them.

If you are still in your due diligence your options are basically to terminate, get permission to do the repairs from the seller, or do an amendment and change the conditions. Your agent is the one you need to address these questions with since they are the ones representing you.

Disclaimer: This reply is in no way representation or advice by legal counsel, but purely the opinion of someone in cyber land on a real estate forum. If you are currently working with an agent then please erase all memory of this post as it is not the intention of the poster to be a solicitation of that listing, broker agreement or their business.
0 votes
Ken Cook, , Atlanta, GA
Tue May 3, 2011
You can go with a 203k streamline. Your situation is very common these days and definitely best answered by a reputable, licensed lender.
Web Reference:  http://kennycook.com
0 votes
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