When Are Funds Allowed To Be Put In Escrow For Repairs?

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

Lenn Harley raised some excellent points in her blog "Repair Escrow?? Perhaps. Perhaps Not. Check With Your Lender."  Lenn was also correct when she responded to my comment and stated "I've had HUD escrows for repairs.  Not fun.  Conventional loans with repair escrows are virtually a thing of the past.  Still, I'll hear agents discussing them like they were an everyday occurrence."  Any Agent who thinks escrowing for repairs is a given, they are not dealing with reality.  So When Are Funds Allowed To Be Put In Escrow For Repairs?

The only Loan Products I am ware of which allow for funds to be put into escrow for repairs after the loan Closes are Fannie Mae Homepath Loans on Fannie Mae REO Properties, FHA 203K, and FHA Loans on FHA/HUD owned properties.  HUD will not make repairs prior to the Closing, and do not allow the Buyer to go into the property to make repairs.  So FHA will allow funds to be put into escrow since they will be insurer of the new loan. 

All other loans I am aware of ALL repairs have to be completed prior to the Closing EXCEPT if weather does not permit for repairs to be made.  Some examples of situations of when funds are allowed to be put into escrow for repairs do to weather are:

  • A Roof which needs to be repaired or replace during Winter months in a State where snow is common during the Winter.
  • Exterior painting during a time of the year the temperatures are to cold for the paint to dry properly.
  • Exterior cement/concrete work during a time of the year the temperatures are to cold for the cement/concrete to cure properly.

There are other examples similar to those above, but these three are the most common ones I see.  Under these types of situations the Lender will allow for funds to be put into escrow for repairs.  But even under these situations putting funds in an escrow account for repairs to be completed after the Closing are not automatic.  A Lender could refuse to escrow for repairs if the area is experiencing an unusually warm Winter, or for other similar reasons.  Even when funds are allowed to be put into escrow for repairs, it is not the ideal thing to do for many of the reasons Lenn stated in her blog "Repair Escrow?? Perhaps. Perhaps Not. Check With Your Lender." 

So When Are Funds Allowed To Be Put In Escrow For Repairs?  They are allowed only when they are specific to a Loan Product, or under very special circumstances like the ones listed above.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

George.  Looks like you got the attention of some good agents here.  Good post. 

Today with so many properties in need of repair and sellers not taking responsibility for maintenance, it's a growing problem.

May 24, 2014 12:27 AM #21
Rainmaker
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Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I have not seen this in sometime, except on the 203K loan.  Lenders have told me not to even try it.

May 24, 2014 01:01 AM #22
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, in 10 years I have only had 1 escrow and that was for a furnace. The sellers put up the value of the furnace and the buyer had to match the value as well. When it closed, and the furnace was installed, the funds were released. The loan was CHFA

May 24, 2014 01:10 AM #23
Rainmaker
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Teral McDowell
Referral Patners LLC - Murphy, TX

hi George, read yours - good information then I had to jump over and read Lenn's. I like her conclusion - keep it simple. Like so many have said, deferred maintenance is costly but one can never do anything about the weather so your points are well taken.

May 24, 2014 01:58 AM #24
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Kristin Hamilton CA Realtor
Sun Lakes Realty - Banning, CA
(909) 557-6966- Specialize 55+ Communties Banning

Hi George,

Great post and well thought out. We were doing a house with a VA loan with some repair issues but luckily we resolved it and closed.

May 24, 2014 02:00 AM #25
Rainer
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Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

Rob Spinosa hit the nail on the head!

May 24, 2014 02:26 AM #26
Rainmaker
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Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Isn't it funny how some people run around saying "you can" do this or that - when they don't know what they're talking about.

May 24, 2014 03:21 AM #27
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Woody Edwards
First Choice Realty, Inc - Chesterfield, VA
A Realtor® Who Answers His Phone!

I have one closing next Friday and we are putting funds in escrow to cover a large window being replaced.  It had to be custom ordered and won't be here for 3 more weeks.  I guess that falls in the area of "beyond our control."

May 24, 2014 03:25 AM #28
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Thank you for this post, great clarification. I have to say I miss the "carpet allowance" days. :)

May 24, 2014 04:36 AM #29
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Jamie R. Bell
Bell Realty Group at Berkshire Hathaway HomeServices NEP - Glastonbury, CT
Your Central CT Realtor

Good information about the few types of loans that will allow this, that explains why so many HUD properties not insured with repair escrow.

As always a great post George! 

 

May 24, 2014 07:30 AM #30
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Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

I had a Rural Development Loan that required storm windows be installed.  Instead of handling it through Escrow, Rural Development held the payment until the windows were installed.. this is the only time I've had it handled this way.. I thought that it would be held in escrow but was not.  

May 24, 2014 10:23 AM #31
Rainer
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Michael Frank
American United Mortgage Corp. - Sandy Springs, GA

Thanks for this post because I had someone ask me about this on Friday. Most of the public thinks repairs for escrows are standard fare.

May 24, 2014 12:07 PM #32
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Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

I never mention repairs in a contract.  If repairs costs are negotiated, most Realtors in Dallas ask for a price reduction.

May 24, 2014 02:49 PM #33
Rainmaker
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Christi Farrington
Dagny's Real Estate - Wilton, CT
~ Your representative in Fairfield County, CT

Thanks, George.  I have never heard of this before.  Good to know. In all of my years in real estate, I've always had repairs done prior to closing or had a price reduction. 

Always great information! Thank you!

May 24, 2014 11:48 PM #34
Rainmaker
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Carolyn Roland-Historic Homes For Sale In Delaware and S. Chester County PA
Patterson-Schwartz Real Estate - Wilmington, DE
Carolyn Roland, GRI, CRS

Back in the old days we used to be able to escrow for repairs, but not now. I had a home sale where the radon count was borderline. We used to say you could escrow money for remediation and get a radon long term test done extending past closing. But not any more. So sellers had to pay for remediation up front and had it installed prior to closing.

May 25, 2014 03:57 AM #35
Rainmaker
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Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

George, I was told by the mortgage broker that we could credit the buyer up to 2% of the sale price on a FHA mortgage.  I am counting on this being the case or we won't be able to close.  Yikes!

May 26, 2014 09:27 AM #36
Rainmaker
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Troy Erickson AZ Realtor (602) 295-6807
Good Company Real Estate www.ChandlerRealEstate.weebly.com - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

I don't even like to have my clients get things repaired by the seller because there can be delays, or the work can be very shabby since they are selling. I prefer to get a quote from a professional/licensed contractor and ask for the money off of the sales price. That way I know the buyer can get the job done right.

May 26, 2014 01:53 PM #37
Rainmaker
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Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

I recently had my first closing in 11 years that involved repair escrow. The buyer had a superb lender who guided us through this new experience.

May 28, 2014 09:51 PM #38
Rainer
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American Brokers Realty Group
American Brokers Realty Group, Inc - Cape Coral, FL

Finally some great info that we can all keep in mind! Keep up the good work!

May 28, 2014 11:18 PM #39
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John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
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You can add engineered certifications and foundation retrofits on HUD Manufactured Homes to your list in some cases.

Jun 01, 2014 01:44 AM #40
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