Profile picture for Anders58

How do we protect ourselves as buyers doing repairs on a foreclosure home before closing?

  • October 14 2010 - Rapid City
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Answers (14)

There are several ways to protect your self:
If you are doing a 203K home renovation loan the money is set aside until after closing and then you do the repairs.
You have the lender agee to let you escrow the money for the repairs and do them after closing.
If you are doing a Home path mortgage loan they can include the repair money in the loan.
  • January 08 2012
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" That would only be possible in Escrow States, like CA."

Good point. Not sure what they in SD but worth checking into. I keep forgetting that not everyone lives in CA. Not sure why considering it's sunny and 71 degrees today! 
  • January 08 2012
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That would only be possible in Escrow States, like CA.  In MA when the docs are signed the loan is funded.
  • January 08 2012
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Ask your loan officer if they can get this moved to a PTF (prior to funding) condition. This would mean that your loan is approved and you will have signed documents before having to make the repairs. This is very common. The most recent I have seen was for a detached garage that was converted to an office. It had to be restored to a functioning garage as a condition and the underwriter allowed it to be moved to PTF. Once the loan was approved and the docs were signed, the garage was converted and the loan funded. 
  • January 08 2012
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You can ask the bank to reimburse you in an addendum if you cannot get financing or something else is found deficient with the house.  Chances are they won't agree.

Sometimes the bank will make the repair themselves.  Again, chances are slim for this.

If you feel that strongly about the property, then you'll have to take a risk and proceed, knowing fully that you have a possibility of losing your money.  Unfortunately no transaction is 100% risk free.
  • January 08 2012
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Profile picture for Alan Grizzle
No always but sometimes you can get the bank that is selling it to make some repairs if the repairs are a condition of the buyers loan. It is worth asking. The worst thing they can do is say no.
  • January 08 2012
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That's what renovation financing is but you will not be able to get a regular conventional loan and put repair funds in escrow.  The only time a lender allows that is if the repairs cannot be made due to weather related issues.  A heating system would not fall into that catagory.
  • January 08 2012
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Profile picture for harleyguy26
Is this a good idea?
  • January 08 2012
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Profile picture for harleyguy26
I'm trying to get the lender to let me put the repair funds in escrow. So we can close and then do repairs before we move in.
  • January 08 2012
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You get renovation financing.  No lender will close on a property that does not have working utilities unless you are obtaining renovation financing.

Making the repairs before you take ownership is a really bad idea.  Before you do that speak with a real estate attorney so they can advise you.
  • January 08 2012
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Profile picture for harleyguy26
Hi, We put an offer on a foreclosure that need a new furnace. We told our realtor that we would pay for the furnace after closing, but the mortgage company won't close until the repairs are done. What can we do?

Thanks
  • January 08 2012
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Profile picture for Mills Realty
Doing any repairs prior to the close of escrow is very risky and since the repairs are being requested by the buyer's lender the seller is not going to help you out in anyway.  If you can convince the buyer's lender to agree to allow the repairs to be done after closing and the funds held in escrow that is about as good as you can do.
  • October 14 2010
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I recently sold a foreclosed property which required repairs before closing.  The buyer's lender required repairs be made and sent an appraiser to inspect the repairs before they would clear the loan for closing.  Fortunately, some of the repairs were on the exterior of the house and very minor (i.e. replace a brick on the stairs leading to the house), the larger repairs could not be made prior to the closing.  The lender agreed to an escrow hold back for the repairs.

Before the lender agreed to the hold back, my buyers had to obtain 3 estimates from licensed contractors for all the repairs.  Also, my buyers had to provide the funds to be held in escrow.  The lender would not finance the hold back. 

Fortunately, my buyers had the funds to place in escrow, however before the lender will release the money for the repairs, another inspection is required. 

Good Luck!
  • October 14 2010
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You don't do repairs prior to closing...You get a renovation loan and make the repairs after you own the property.
  • October 14 2010
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