Buyer's Guide: Why Banks Aren't So Eager to Allow Repairs Prior to Closing

Buyer's Guide: Why Banks Aren't So Eager to Allow Repairs Prior to Closing

Copyright (c) 2010, Deanna & Jim's GOLD Team, RE/MAX Olympic Realty

    Many buyers find the values available in bank-owned (foreclosure, REO) property to be compellingly attractive.  Sometimes there are repairs to remediate deferred maintenance or vandalism that the buyer wants to get done prior to closing.  This turns out to be riskier than the buyer might imagine.  Here are the things the bank's asset manager will be concerned about.

    You, the buyer are asking permission to repair someone else's house. It may never become yours!

    If the person doing the repairs is injured, or worse yet causes personal injury or property damage to the property or someone else's property who is liable?  The bank will insist that the person(s) doing the work are licensed contractors with insurance and workman's compensation in place.

    If the contractor makes the repairs and is not paid they have the ability to file a mechanics lien against the property itself within 90 days of completing the work (in Virginia, your jurisdiction may vary).  The bank is NOT interested in clouding title of the property if the contractor is not paid. You may not be interested in paying for the repairs unless you close on the property.  The bank will insist that you pay the contractor immediately upon completion of the work and deliver their representative a copy of the paid in full invoice to ensure that they have not allowed you to create a mechanics lien.

    If some problem arises you may not close on the house after you have paid for the repairs. If so, tough, the repairs belong to the bank. You have no right to have your contractor go back in the property and uninstall that new water heater you just paid for!

   Pre-settlement buyer-paid repairs to REO property are approved by many banks in many situations.  The bank will, however, nearly always require language addressing the above points in approving your contractor's access to perform the repairs.

(Deanna and Jim's GOLD Team has handled over 500 northern Virginia residential real estate transactions in the last 10 years. We have MBA, MSE, MA, CDPE and Associate Broker credentials.)