Before and after REO fixer

Buyers are taking full advantage of a down market by purchasing homes at low, low prices after foreclosure or through short sales. The problem is most of the homes have either been neglected or damaged and no longer qualify for government financing, such as an FHA Loan. As a result, some real estate agents are requiring the buyer to pay for repairs up-front.

In one recent transaction the buyer paid $8,500 up-front to have termite damage and other items repaired in anticipation of qualifying for FHA financing.

In some markets the listing agents are advising potential buyers to pay for up-front repairs to abandoned REO and short sale properties during the offer and closing process to ensure the property will qualify for government financing. As a result, the buyer pays for repairs to get the home ready for appraisal. In one recent transaction the buyer paid $8,500 up-front to have termite damage and other items repaired in anticipation of qualifying for FHA financing.

Foreclosure Do-Over

The property was an REO property owned by a bank – post foreclosure. During repair to the property a contract was presented and accepted by the bank. An escrow was opened and a title report ordered that uncovered a defective trustee’s sale. The bank ultimately had to re-start the noticing period and the entire foreclosure process!

The REO bank had to pull out of the contract, since it could not deliver free and clear marketable title to the buyer. The buyer received a full refund of her earnest money deposit, but not the $8,500 spent repairing the home.

Advice from Title

The buyer asked the title company what she could do to collect her up-front cost of repairing a home she ultimately could not purchase. Our response was to consult an attorney, since she might have the ability to file a mechanics’ lien in order to recoup her costs.

More articles relating to REO Transactions:

The REO Transaction Process
Setting expectations on an REO Transaction
4 Hot tips for working with Escrow on an REO Transaction

Questions or comments?  Please share below!

2 Comments
  1. Or they could have used Legacy Group for financing and made use of our CAPITAL division. We may be able to finance the repairs, as well as the aquisition, and put the client into a position of buying the home without having to ROLL THE DICE with their funds in up front repairs. Not to mention putting them in a final loan that may not even require the use of FHA or other gov’t loan programs. Just another reason clients need to deal with licensed mortgage professionals with the tools to solve these problem aquisitions.

  2. We hardly ever advise clients to make repairs before closing. Besides the fact that the bank should pay for the repairs to make the house loanable, there is the issue of insurance and liability. If the house isn’t loanable with FHA, the owner has a real problem. Our experience has been that most banks want to do the repairs themselves.

    Good artice, Denise. 🙂

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