October 2nd, 2012
Repair Amendments for Mortgage Lenders
Homebuyers like the option period.
Its only prudent to check the house out before being obligated to buy it.
Would you buy a used car you hadn’t driven or inspected?
You’ve heard the phrase “Caveat Emptor”.
In Latin, it means “let the buyer beware”.
A warning that notifies a buyer that the goods he or she is buying are "as is," or subject to all defects
If a borrower asks if they should do inspections, the answer is yes.
The property appraisal in lending dictates home value.
It certainly is not a substitute for a home inspection.
After inspections, negotiation on repair items usually occurs.
A seller can perform repairs, or offer money in lieu of performance.
When it involves money, it occurs by:
· Adjustment to sales price
· Seller contribution to closing costs
· Payment towards repair invoices
The property inspection chronicles condition needs & imperfections.
No house gets a perfect A+ inspection without having items listed.
Have you ever seen an inspection report citing nothing???
Lenders don’t want a copy of inspections, unless a loan requirement.
If lenders obtained them, all items listed would require correction or repair.
Contract amendments are routinely done for option period renegotiations.
The amendment lists the agreements of parties for change of terms.
Yet, contract amendments cause mortgage companies major lending heartburn.
Alike the inspection report, anything listed must be done.
Let’s look at everyone’s perspective to understand this fully.
Buyer & seller:
Detailed listing of everything is desirable.
Same as buyer to protect everyone.
In common, the premise that more detail equals less chance for misunderstanding or legal issue.
Everything listed must be performed & satisfactorily verified.
The amendment has contract terms that affect property, our collateral.
So, here we are at the catch 22 of repair amendments.
If it’s a cash deal without financing, it’s all good!
If there’s mortgage financing, all lenders are in the same boat, verify it.
The easy solution appears to send the amendment to the appraiser.
That sounds easy, except for that they are appraisers, and not inspectors.
The appraiser is required to have all contract amendments.
The appraiser isn’t qualified to determine if repairs are completed satisfactorily.
Think about what you see on amendments ?
Some amendments have attachments with inspections reports, or language from them.
It can involve plumbing, electrical, roofing, etc….
How do you write an amendment for mortgage lender acceptance?
Tip 1: Never attach pages of inspection reports !
· It opens Pandora’s box in lending, not a good thing.
Tip 2: Obtain good documentation from qualified sources !
· Have the repairs performed by qualified and/or licensed firms.
· When lenders need repair paperwork, third party invoices or receipts are required.
· When a buyer or seller perform work, we can’t accept their word.
Tip 3: Repairs referenced must be done before closing !
· Lenders must determine repairs are done satisfactorily before closing.
· If a final inspection is needed, it must pass prior to closing.
Tip 4: Monetary adjustments are better than itemized repairs !
· If you have room for payment of concessions, lenders prefer it.
· It gives the buyer the money to perform their own quality work.
Next time you write an amendment, think about the lender will interpret it.
That’s your best advice to balancing everyone’s interests.