Let’s call this real estate horror film Mission Impossible –
Saving the Sale. It’s the sequel to Mission Impossible – The Roof Needs Repair
starring Surprised Seller and Upset Buyer. Also featuring Scrambling Realtor
and Cautious Escrow Officer.
The scene opens with a pending sale on a property that needs
a repair that the seller has agreed to do. However, the repairs cannot be
completed before the closing. It could be hail damage to a roof that happens a
couple of days before closing. Or wood floors that become damaged when a water
pipe breaks just before closing day.
Whatever the scenario, there isn’t enough time to make the
repair before closing day. In that case, the parties to the transaction may
want to use an escrow agreement to close on time and allow the repairs to occur
after closing.
Escrowing for repairs can be a somewhat complicated
situation and the procedure often varies from title company to title company
and lender to lender. Here’s how it usually works:
First, find out if the title company and buyer’s mortgage
company will allow it. Some companies have a strict policy against escrowing
for repairs to be performed after closing. The rules and restrictions regarding
repair escrows vary by lender and title company. I’ve dealt with escrow repairs
only a couple of times and those involved cash purchases with no lender
involved. If the lender or title company won’t allow it, then closing may need
to be delayed.
If a repair escrow is allowed, an amendment to the contract
and a very specific and detailed escrow agreement is signed by all parties
prior to closing. The title company may want to prepare this agreement. It
should state exactly what item is to be repaired, the cost of the repair or
agreed allowance for the repair, the company doing the repair, etc. Nothing
should be vague or unclear.
This agreement should set forth all terms as to when, how,
and who will make repairs. And how and who payment will be made when repairs
are complete. The buyer will have a specific amount of time (typically 30 days)
to have repairs completed.
The title company will require invoices for the repairs and
a release be signed before money is disbursed. And they usually will pay the
contractor directly upon receipt of the invoice and release.
The escrow agreement will also set forth terms as to whom any
remaining money will be paid. And it must address what happens if the amount
escrowed for repairs is not enough to cover the invoice in full. Everyone will
want to be certain that enough funds are escrowed to pay the repair in full
since a lien could be filed by the contractor if it isn’t paid.
Keep in mind that this will be the buyer’s property when the
repairs are done after closing. Therefore, the buyer may want to choose the
company doing the repairs. Otherwise, the buyer may have to go back to the seller
if the repairs are incomplete or inadequate.
The cast of characters in this show include not only the
buyer and seller, but the repair company, title company, and the lender. It
takes good choreography to make it work.
The opinions expressed are of the individual author for
informational purposes only and not for the purpose of providing legal advice. [where: 75230]
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