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