Home Repair Responsibility Differs For Foreclosure
Added March 20, 2009 by Ilyce R. GlinkSummary: When you're buying a home, the seller is usually responsible for making repairs before closing. But when you're buying a foreclosure, the responsibility for fixing the home does not usually lie with the mortgage lender who's selling it. When you're trying to decide whether to buy a foreclosure you should think about how extensive the repairs will be and whether it's worth it to you to roll the cost of them into the mortgage loan.
Q: My daughter is in the process of buying a foreclosed home and she is obtaining an FHA loan. There are several repairs that FHA is requiring be made before closing.
The real estate team handling the sale for the bank told my daughter’s real estate agent that she is responsible for the repairs that must be made before they will fund the loan. They said my daughter would be allowed to roll the cost of the repairs into her loan.
My husband and I wonder who is actually responsible for the repairs. It is a foreclosure, but since the bank is the current owner, wouldn’t they be the ones to pay?
A: Normally, a buyer can negotiate FHA-required repairs with a seller. If the seller refuses to make repairs, the buyer could walk from the deal. But in a foreclosure situation, I don’t believe that lenders have to assume the responsibility for getting the repairs completed. It sounds like they have decided not to do anything and allow the buyer to fix up the home.
Unless the home is being sold to you “as-is,” you could ask the lender/seller to reduce the price of the property further to cover the amount of the repairs. If you get that price reduction, you could then make the repairs and finance them into the loan. Be prepared for the lender to say "No" to this plan.
At that time, your daughter will have to decide if she wants to make the repairs or walk away from the purchase. If she is getting a great deal on the home, my sense is that she should probably go ahead and make the repairs if they're not too extensive or expensive. But if it's a $30,000 repair on a cracked foundation, then she might want to rethink the purchase.
I hope your daughter has her own agent representing her in this purchase and if not, I strongly urge you to find her an excellent real estate attorney who can make sure she is protected.
She can find a good attorney (not the bank's attorney, but her own counsel) through your local bar association.
Follow-up: I got an email back from the buyer’s mother who said that the lender again refused to pay for the cost of repairs. But since the repairs will only cost $800, the daughter has decided to proceed.
March 20, 2009
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Comments
Bob says
Does the local bar association really recommend "excellent" attorneys or just "hungry" attorneys who have asked for referrals in the specified field?
Stefanie says
Quick question. I just got a home inspection done on a foreclosed property and the inspector found that the home will need a new AC unit installed, as the one currently installed is on its last leg and seems to be the original unit that came with the house--the property is 23 years old! I got a few estimates and it will cost approximately $8000 to install a new one. My offer for the home was accepted at 215k, and I believe that it will be appraised at just about that or less, given the market value. If I am already paying top dollar for the home, eventhough it is a foreclosure, will that give me better leverage to negotiate the $8000 AC repair into the deal? As it stands, by purchasing the home for 215k, I am paying the full value for the home. If I have to go into the deal adding an additional $10,000 in repairs (the waterheater needs to be replaced as well), I won't be getting a deal. My question is that eventhough I know getting the bank to front the bill on repairs to foreclosed properties is pretty difficult, does any one think I have a good chance given the details I have shared? otherwise, I will have to junk the deal and find another house--and I LOVE this house!
Ilyce says
Bob: My experience is that Bar Associations really recommend good attorneys who have asked to be put on a referral list. But I also recommend going to the head of the Bar's committee (like, the real estate committee, the zoning committee, or the litigation committee) and speaking with that individual about your problem and asking for a specific referral. Often, that person is a GREAT source of knowledge about who has the kind of legal expertise you're looking for.
Ilyce says
Stephanie: I think if you're buying a foreclosure, you'll find the bank unwilling to bend on these kind of inspection items. You might be able to persuade them but probably not. And, if you're buying a foreclosure that's close to market value, you do have to worry about what is the value of the property if you add another $10,000 to it. Is the house truly worth it? If it is and you plan to be there for the long run, then $10,000 now won't matter. Think about the long term. Finally, you should always ask for what you want in a real estate deal, but decide ahead of time what you will do if the answer isn't what you're hoping for. Thanks for your email.