Austin home buyers sometimes ask if they are able to do repairs on a home before closing. This usually comes up with houses that don’t qualify for financing (homes with no stove, no heater, missing toilets, etc). For the purposes of the question allow me to greatly oversimplify. The answer is “No” even if the seller is agreeable. Why?
Your Lender Will Say No
Your lender will not allow it because of the risk of default on their loan. In the example, the cost of the work creates a senior lien against the property which would take priority over the lender’s 1st loan. Should the bill not be paid, the contractor could foreclose on the property, wiping out the lender debt even if is a small repair. While that’s not likely because the lender could step in to pay off the contractor, they don’t want the potential hassle. The lender will not fund your loan if they find out about the work.
The Title Company Probably Won’t Close Escrow
The title company will balk because they are insuring the title the chain of which has been altered. They probably won’t close the escrow without a whole lot of indemnification…more likely they won’t close at all.
What Happens if the Transaction Does Not Close Escrow?
Suppose the transaction does not close escrow, the contractor could go after the home owner. If the work is incomplete, the seller is living with a mess and an angry contractor looking for money. It could get ugly and you’re in the middle.
Insurance Claim Issues if Property is Damaged
Should the property be materially damaged or destroy from fire or other hazard, many insurance issues arise which I am unqualified to address. I do know this: a REALTOR is not the right person to answer insurance questions.
What About Repairs Agreed to in the Contract?
A related but completely different question is: “Can a contractually agreed upon repair be performed prior to closing for which either the seller or buyer will pay”? The answer is: Of course, the contract is the controlling document and it governs responsibility of the parties.
Why Foreclosures Go for Cash
Lenders won’t make loans on properties they deem as uninhabitable. But, they won’t let buyers make repairs before closing to add essential items like stoves, toilets and heaters. When you see a foreclosure or bank owned home that is looking for a cash buyer, it usually means the property would not qualify for financing. If you have cash, this is one of the ways you can get a great deal on a home that will only be feasible for a small subset of the population.
This is Not Legal Advice
Make no mistake about my answers. They are general in nature for educational and entertainment purposes only. These are complicated, complex legal issues that only a real estate attorney should render advice. I did not, have not and will not offer a legal opinion.
Considering Buying a Home in Austin?
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