Lender Get Over-Involved

Usually, when a home inspection is done on a property, the buyer makes up a list of repairs that they would like the seller to complete prior to settlement. Then a negotiation starts, until both parties are in agreement. Usually, this negotiation is only between the buyer and seller.

Occasionally, the buyer will be going through a loan program that may require certain types of repairs. These repairs are mandatory, so sellers should be aware of this before accepting a contract on their property.

FHA and VA are the best known for requiring repairs. This is why, during the hot market of 2004 and 2005, FHA and VA loans just about dropped off the face of the earth in our area. However, there are some other loan programs that also require repairs. In Maryland, CDA is one of them. CDA is a bond program through the Maryland Department of Housing and Community Development. It’s a great program, with below market rates for first time buyers. For details, visit MoreHouse4Less.com.

CDA has revised their repair requirements to better reflect today’s market. They have recognized that requiring lots of repairs takes the negotiation away from the buyer and seller. And it does so after the contract price and closing help have already been negotiated. So now they only require repairs when there is an imminent threat to health or safety or an immediate fire hazard. A gas leak. Evident mold or a wet basement.

However, sometimes the lender who is actually processing the loan gets into the picture.

I have a listing in precisely this situation. The lender took every item on the home inspection report — from a leaking valve on the water heater (needs to be repaired) to a whole list of cosmetic items (like a window that has Plexiglas instead of glass) and required the seller repair them. 16 items. My client agreed to the plumbing and electrical items, but not the cosmetic items. (She is, after all, giving almost $9000 in closing help).

After trying to resolve this on the phone, I made a surprise visit to the lender and spent an hour and a half arguing about the list.  We called CDA, who said that not only were none of these repairs required, none of the items on the report rose to the level of imminent threat to health or safety. The lender was indifferent, saying CDA didn’t know what they were talking about. (Huh? CDA is the one who sets the rules!)

The lender said that the home inspector did a poor job, because he shouldn’t have listed cosmetic items.  I told the lender that the home inspector was writing the report for the benefit of the buyer, not lender. No, said the lender, the home inspectors are just upset because they didn’t get any business when the market was hot.

The lender said that these cosmetic items could devalue the property. I suggested that this was an area for the appraiser to address and the appraiser found the property to be in above average condition. The lender came back with a statement that the appraiser didn’t do a good job either. I said, but you hire the appraiser, he’s your guy. Yep, but you know they don’t always do a good job.

So, I said: the buyer, the home inspector and the appraiser who, by the way, have all been in the property, are incompetent to determine the condition of the property and you, who have never been in the property, know better than all of them.

“Yep” was the answer.

I finally got the lender to agree to a written statement from the home inspector and, based on what he says, they may remove the items.

Here is a case where the lender has so obviously overstepped its bounds — jeopardizing a sale. The buyer really wants this property. The seller really wants to sell it to this buyer, but not at the expense of replacing a whole list of items that are not broken.

The lender is a large lender in our area — not some small operation. My previous experience with CDA told me that this seller had nothing to fear from CDA. It just goes to show, something can always come out of left field. In this case, I’m guessing that the lender had a problem getting CDA to fund a loan and now they’re covering their hind parts to the nth degree.

The lender did give me paternal pat on the hand and tell me that I can safely go back to my seller and tell her that I’m working hard on her behalf. Like that’s the only reason I was sitting in his office for an hour and a half. Those who know me know I’m fairly non-violent. This situation is testing that.

I’ll let you know how things turn out.

(C) 2007 Susan Pruden.

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