Can anything be done when shoddy repairs are made by the seller?

Question:
We just closed on a house where there were repairs to be made and paid for
by the seller. We took over the seller's conventional loan, and felt that
since we had itemized in the contract the work required, we assumed it would
be professionally done. We were shocked to find that although the work was
completed, the workmanship was shoddy and the materials used were very
cheap. What can we do now?--BE

Answer:
You have just been reminded of the first rule of business: Never assume
anything! At this point you could attempt to take the seller to court, but
it may not be worth the time, effort, and costs. In addition, since you had
not specified in the agreement how the work was to be completed, you might
not prevail in court.

What could you have done differently? You could have specified exactly how
you desired the property to be repaired. This could include the type of
materials to be used, even the type of professional to do the work (ie.
Journeyman carpenter, cabinetry specialist, etc.).

You might have wanted the ability to check the property during the repairs,
but definitely upon completion of the work prior to closing. For financial
padding, it's not unusual for a buyer to negotiate that monies equal to one
and one-half times the highest bid amount of the repair be withheld from the
seller's proceeds until the buyer has approved the completed work. This
could have been part of the purchase agreement.

Before writing this off as an expensive lesson, contact the seller (or go
through the real estate agent, if one was used) to explain your discontent
with the work. The seller may not have inspected the work, especially if he
moved before the closing, and might not be aware of the circumstances. If
the seller or closing agent has not made final payment to the contractor,
this could also serve as leverage to get the job improved to your
satisfaction.

Purchasing a second home without selling the first!

Question:
We may have committed the cardinal sin of home buying: we bought a second
home without selling our current home first! Now we're less than sixty days
away from closing and we don't have sufficient money for down payment and
closing costs on the new home. What can we do? Help!--TP

Answer:
It sounds as though you didn't make the sale of your first home contingent
on the purchase of the second. While this looks like a mountain, it may have
some viable solutions.

Based on your financial picture and the amount of equity you have in your
first home, why not ask the lender on your first loan to arrange a "swing
loan/bridge loan" for you? This means that you receive a portion of your
equity, (secured by a second mortgage, of course) in advance of the property
sale in order to "swing" the second sale and "bridge" the temporary gap in
your funds! This loan might have creative terms to fit your budget, like
interest-only and a balloon payment when your property sells. One draw back,
however, is that the interest rate may be higher than market-rate for
standard mortgages. This will give you a real incentive to market your first
home quickly at a reasonable price.

If you are looking for a new mortgage for the second property, you may be
able to negotiate your closing costs on the swing loan by giving your lender
the first option to write the loan on the new property. Staying with one
lender who knows the circumstances of the transaction is a good idea, in
case things don't go as planned and you need additional time to perform.

What if the PMI company turns down the property?

Question:
We just received word that even though the lender found us acceptable as
purchasers, the Private Mortgage Insurance company turned down the property
we were buying because they didn't like its condition. What are our
alternatives if we want to purchase this property?--IW

Answer:
Just as the lender has her own guidelines for borrower and property
qualification, so does the private mortgage insurer. Remember that the
private mortgage insurer is protecting the lender against the borrower's
default, typically on the top 20% of the loan. If the PMI company doesn't
like the condition of the property, it may be unlikely that the lender will
want to take the risk by herself.

Have the lender ask the PMI insurer what needs to be repaired and to what
degree. You'll need to negotiate who will pay for the repairs (buyer,
seller, or third party), as well as the time frame for completion of the
work.

If repairing isn't an option, would the PMI company accept any other
alternative, such as more down payment, higher PMI fees, etc? Could the
seller carry part of the purchase price in seller financing, eliminating the
need for private mortgage insurance? If these options fail, ask if the
lender could keep the loan in portfolio (in house, not selling it to an
outside investor), to possibly eliminate the need for private mortgage
insurance.

The lender may be willing to shop for another Private Mortgage Insurance
carrier with property guidelines less stringent than the first. Be sure to
make this request known to the lender before you give up on purchasing this
property.

Do you need a second appraisal on slow closings?

Question:
It's taken forever for the sale of our property to close. And now the lender
says that we need a second appraisal. Do you have any idea why this is
happening?--AC

Answer:
I can only guess that it's been six months or more since the original
appraisal was done. In today's market where values are fluctuating, it is in
the lender's best interest (as well as the borrower's) to make sure that
there is adequate collateral in the property before making the loan.

The appraisal request could also be made by the private mortgage insurance
(PMI) company. They insure the lender against the borrower's default,
usually on the top 20% of the loan. If the first appraisal is old, or if the
PMI company has questions about the value of the property or the
neighborhood, they could request a second appraisal.

Ask the lender why a second full appraisal is necessary. Sometimes a
drive-by of the property will verify the value, and document the loan.

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