When underwriters speak, everyone listens. How true is this?
Several of my accepted offers are on homes needing repairs. On more than one occasion, the loans were not approved because the underwriters flagged comments made by the appraisers.
WHAT UNDERWRITERS WANT (these comments are verbatim)
- 29E) FINAL INSPECTION VERIFYING THE FOLLOWING REPAIRS ARE COMPLETED: REPLACE TWO BROKEN WINDOWS, REPAIR SMALL HOLE IN LIVING ROOM, WALL, SECURE OR REPAIR WORN CARPET IN THE BEDROOM THAT HAS BEEN PULLED UP, REPAIR BROKEN SLATS ON OUTSIDE STAIRS LEADING FROM HOUSE TO BACKYARD, INSTALL RAILING TO BASEMENT STAIRS, REMOVE DILAPIDATED GARAGE.
- Subject property has been vacant for a number of years and the neglect is apparent. There is extensive water damage in one of the bedrooms that has affected the wall and the flooring. The room beyond the kitchen, in the rear of the house is severely damaged. It appears to be beyond repair and it's recommended that this room be removed.
- The underwriter is asking that all of the items on the structural pest control report section 1 & 2 be fixed.
SOME SOLUTIONS
- Sellers do the required repairs --- but if they do, they will raise the list price. After all, these properties are advertised as fixers
- Hold-back at escrow --- Sellers don't want to wait to get their money
- Sellers to finance the loan --- Rare.
- OR.....have work done by Buyer who is buying the fixer, with authorization from Seller.
In these situations, we got bids to fix the problems. Upon agreement between Buyer and Seller, we arrange to have the work done, and then have the appraisers return to re-certify the work so that the underwriters will approve the loan.
NOTICE OF NON-RESPONSIBILITY
It's getting so challenging that we anticipate what appraisers and underwriters will say. Since we can see beforehand that the properties are fixers, my contractor clients are including in our offers to do some of the work before the loan is approved. We include clauses that upon acceptance, the Seller will authorize the work via an Addendum and a Notice of Non-Responsibility.
Excerpt from this Notice:
"A. Declarant (owner or agent of owner) first obtained knowledge of the work of improvement on the Property on Date. B. Declarant will not be responsible for any such work or improvement on the Property, nor any work, labor, services, equipment or materials that have been, are being, or may be furnished for the work of improvement on the Property.This Notice shall be posted at a conspicuous place on the Property within 10 days after the person claiming the benefits of non-responsibility has obtained knowledge of the work of improvement. Withint this same ten-day period, the Noice shall be recored in the office of county recorder of the county in which the Property, or some part thereof, is located."
REAL EXAMPLE
When I bought my duplex, my appraiser advised me to have some work done in the rear of the property otherwise the the loan will not be approved. After discussing this with the Seller, he agreed to let me proceed on having some of the work done at my expense. For this, we got his approval and the Notice of Non-Responsibility.
OTHER SOLUTIONS?
Do any of you have other solutions to this ever-evolving and ever-growing challenge of having underwriters turn down loans because the properties need repairs? How do you handle fixers?
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