Repair Concessions (Mice or Elephants)

Every property is different, every sale will be different and subject to unique nuances that can make or break a closable transaction. One of the reasons I am a believer in and advocate of pre-inspection at the time of listing has never been experienced more often (in my experience) than the matter of Termite assessment and abatement. We know of no actual law that make Termite mitigation mandatory, however, once the issue of Termite are brought into the agreement by either party, mortgage originators typically require a Termite clearance or completion notice. I choose this point because it is the most miss-understood point by not only the public, but too many real estate professionals. Here is how it usually happens when termite issues cripple a Short Sale transaction.

Example

The initial offer contains the provision that the Seller both provide a current Termite report, and perform the corrective recommendations at the Seller’s expense. In counter offer, the Buyer and Seller agree to split the costs of the corrective work and life goes on, the offer is submitted and we wait. In the old school, the Buyer has NO skin in the deal and once the sale is approved by the Short Sale bank, we go merrily into escrow and perform. The Buyer now conducts a general home inspection and the Seller provides the Buyer a Termite inspection for review.

In this instance of the example, the termite report reveals corrective work in the roof eaves at the rear of the structure. The Buyer plans on demolishing the rear portion of the structure to allow for a room addition. After diligent consideration the buyer requests a waiver of Termite work in exchange for a credit from the Seller. All seems fine, they agree and life moves on again. The Buyers final loan approval is granted, the contingency for the Buyers financing is now removed by the Buyer as agreed. Loan documents are drawn and delivered to the Escrow or closing Attorney. One or the conditions of the Buyer loan provide for that Termite Completion or Clearance. This condition is not known by the Agents because it is typically a condition that closing servicers assume will be delivered by the Agents in the transaction. In this case, the fact that Termite was waived out is something that servicers may not imagine would become a problem later either. The funding of the loan is now declined and the Buyer has removed that contingency for financing. In most States, this removing of a contingency of this nature may be considered final and not retractable. Where could perhaps these parties wind up having to settle this miss-understanding?

Laws are different from State to State. Before concluding that the Buyer is safe because the entire offer proceeding was subject to the approval of a Short Sale, may not be the answer every plaintive hungry Attorney may tell.

With this area of a Short Sale revealed, keep in touch until my next tip hits real estate cyberspace and be well.

Copyright © 2010 Bryan Ridgley

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