Q: I tried to buy a house. I applied for a bank loan and the bank processed my loan as an FHA loan instead of a conventional loan. The house I was buying failed the FHA inspection and I did not buy it.
Then I tried to buy another house and two days prior to the closing, the bank asked me to do some repairs. The seller refused to extend the contract and on both houses I lost money. Can I sue to get my money back for the inspections and appraisals?
A: The only thing that’s similar about your two deals is you lost money. Let’s separate the issues in your two failed purchases and look at each.
The first issue is your relationship with the seller of each of these two homes. That relationship is governed by the contract you signed.
The next issue is your relationship with your lender.
Starting with your attempted purchases of two homes, you could look at the first failed purchase and view it as a positive ending. When you buy a home, you, the buyer, have an obligation to become educated about the home you are about to buy. You should have a pretty good understanding of the neighborhood in which the home is located. You should know a bit about the home itself and you should have the home inspected by an independent home inspector of your choosing.
If you know the neighborhood, you should be able to minimize issues that result from a buyer purchasing a home in an area that may have potential problems: a new commercial development planned behind the home you are buying or buying next to a sewer treatment plant or garbage processing facility.
If the neighborhood is fine, then you need to make sure the home won’t give you real problems from the start.
Are the roof, foundation, walls, windows, mechanicals and other structural components of the home in good shape? Most of us are not knowledgeable enough to look at a roof and determine whether it has one year left in its life or 10, but most good home inspectors do have the specific expertise to help you identify any physical failings of a home.
Did you hire a professional home inspector? If you were buying the home as a conventional loan and not FHA (Federal Housing Administration), you would not have had the benefit of the FHA inspection.
If the home failed the FHA inspection, the FHA inspector must have found some critical problems with the home. Had you purchased the home with a conventional loan, you might have had to spend quite a bit of money fixing the problems and you might have been worse off than you are now. Seems to me that you’re lucky the purchase didn’t go through.
If the bank asked for repairs to the second home, it would seem that your loan, again, was processed as an FHA loan. These days it is easier to get financing with an FHA loan than a conventional loan, if you are not putting at least 20 percent down towards the purchase of that home.
In my experience, most FHA required repairs are legitimate repairs that should be made to homes. In some cases, FHA repairs can be minor but as a whole, FHA required repairs are for the protection of the buyer.
That brings us to the real estate contract you signed for the purchase of these two homes.
As a buyer of a home, you have the ability to negotiate the terms of the contract for the home you are buying. (Hopefully the agent you’ve hired has helped you with this.) You can request that the seller make repairs required by FHA to bring the home up to FHA standards and you can require the seller to reimburse you the funds you paid for any appraisal and inspection of the home should the deal fall through.
The seller may not agree to your terms, but the marketplace permits you to request it and to decide whether to proceed with the purchase of the home.
You asked whether you can sue someone to get the money you spent on the inspection and appraisals, but the real question is this: Do you even have the right to get that money back?
If you drive an hour to the store and realize that you forgot your money at home and drive back home and then back to the store, the store would not be responsible to you for the time and gas that it took you to go back and forth. Likewise, the seller and the bank are not responsible to you for these expenses. You essentially took the risk that if the deal fell through, you wouldn’t get this money back. It’s the price you pay to protect yourself.
You should also know, that most buyers take the risk that the payment they make to the lender for the appraisal of the home and credit report will be lost if the deal for the home falls through. Frequently, lenders will only bill the borrower for the credit check (anywhere from $15-$70) but will hold off on the appraisal cost until they know that the borrower is sure that he or she wants to proceed with the purchase.
Unfortunately, in your case it seems your chance of recovering your money is small.