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February 27, 2013

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I do agree that the lender should be aware of the corrections or potential corrections necessary on the property before closing. This gives the lender insight into whether or not the condition of the home is suitable for lending. I think a lot of people have used inspection money for other things in the past, so this will help cut back on that in the marketplace.

Great Comment - It is about potential expenses necessary on the property, but also remember that the Commission wants to make sure that the lender has the opportunity to see all of the money changing hands in the transaction.

They are concerned that a seller concession, especially cash, is given to the buyer and then the buyer never uses the money on the property. This creates the possibility that the property is deficient and not up to the valuation that the lender was told it was.

The only problem I see, if the repairs are severe enough that could change the value of the property, this could force the lender to be sure of the completion of repairs and not negotiated with the Seller to alter the price especially if the Seller doesn't have the money to get the repairs finished prior to closing.

The parties do need to ensure that the seller can cover the cost of any repairs made if the buyer is planning on withdrawing the objection. If the seller does not have the ability to fund or complete the repairs prior to closing then the lender will need to be notified.

There are few options when the property needs repairs and the seller does not the ability to complete them. In these situatons we hope the repairs are not major.

Once an offer has been made on a house, and an inspection of the house begins, must a buyer submit an Inspection Objection, or can he/she just walk away from his/her offer?

Keep in mind that up until the Inspection Objection deadline (which will be in the Colorado Contract to buy and sell) the buyer can terminate the contract using the proper termination notice. While a reason will be asked for, this is still essentially a Free "out" for the buyer.

Once the Inspection Objection form is submitted to the seller AND the deadline passes, we are in a round of negotiations. If the seller agrees to the objection prior to the resolution deadline and submits that to the buyer, we are still under contract.

Thank you for the help in clarifying these new forms. As always, Full Disclosure.

There's an important point that may be getting missed in the discussion regarding the reasons for lender notification of seller concessions for repairs. Money that a seller may give to a buyer/borrower at closing in lieu of actually making the repairs effectively reduces the amount of cash that the borrower is investing in the transaction. If the borrower had the minimum amount of required down payment prior to the seller's payment for repairs, the lender may well find that the down payment is inadequate to meet program guidelines aftre consideration of the seller concession.
A borrower with little or none of their own cash invested ("skin in the game") presents a much higher risk of loan default.

It is true that the lender needs to know that either the property is in need of a major repair or that the seller is granting financial concessions. It is highly likely that these are the two key points that the Commission wants to make certain are covered with the new requirements.

I am curious about one of your posts above. We are under contract with a buyer on our house as the seller. The buyer provided an inspection objection and we agreed in writing to meet and satisfy all of his objections before the Inspection Resolution deadline. The buyer now wants to back out of the contract - in the Inspection Resolution form, we have signed and agreed to all of his objections. The buyer has not signed the Inspection Resolution form yet. What is the precedent here? Can the buyer walk away, no questions asked? Are we entitled to the earnest money if the buyer walks away at this point in the contract? We've invested a considerable sum of money to make repairs that the buyer wanted done.

@Jeff K You will want to first make certain that the buyer is within their dates and deadlines, and if they are then they can still back out of the agreement unfortunately. If they are not then you would contact the real estate professional (if there is one) handling the transaction to ensure that your rights are protected.

That being said, and without taking sides or giving any advice, we would suggest that you can consider contacting an attorney to handle a complaint OR consider the repairs as an investment that you can sell to a new buyer and market those when the property goes active for sale again!

Great idea to separate the parts of the inspection addendum. Clarification language a plus as well!

I appreciate how all of the forms overlap in a way, and point to each other. It's obviously very important to use the proper form, but if you can be sure that you've got the right one, it seems the process is rather straight forward. Provided everyone [including the lender] are on the same page and notified when necessary [i.e., when the values of originally appraised/approved for lending property may be altered.] Quite logical really.

@Matty Hayes

It is logical, and now it seems much of the confusion has been cleared up. The only thing brokers need to remember is that there is no need to duplicate, so you either use the Inspection Resolution OR an Amend/Extend form to memorialize the Inspection Resolution, but not both.

This format appears to be continuing through 2015 as the forms committee did not modify this arrangement this year and has stated they will not in 2014, so brokers should become familiar with this method of resolving inspection issues.

Does the lender have to, (or if they do) contact the property insurance company? Can the insurance company then decide to increase or cancel the homeowners policy?

@Scott While the insurance company could get involved, they typically won't. They will base policy decisions on habitability and value, but they generally aren't notified of any inspection issues.

It would more likely be up to the appraiser to determine items that would be required to be corrected prior to closing.

Full disclosure by all parties make for a successful transaction.

I agree that the lender should be aware of the conditions of the property before closing, because this significantly affects the financial feasibility of the lending of the house.

I currently have a contract with a buyer. He had an inspection conducted, (prior to inspection it was discovered the well pump did not work and therefore installed new pump so the inspection could be conducted), buyer requested extension for another inspection to inspect logs on home, made claims to second inspection, not first stating structural problem with home; does not want to show inspections or any documentation of such problems; now has issued to terminate contact without documented reason and wants earnest money returned ...can this happen?

Without giving any legal advice ...
...As long as it was agreed that the inspection deadline would be extended and the buyer chooses to terminate due to inspection results (in sole subjective opinion of the buyer) before the new deadline then likely this is a reasonable termination. The fact that they did the follow up inspection after the initial deadline won't matter unless there is specific language to the same in the contract or the extension agreement allowing only certain inspections or disallowing others, so nothing in that paragraph seems wrong.


Of course you will want to make sure your broker and/or attorney give you proper counsel or legal advice AND it absolutely depends on what the contract to buy and sell, as well as any extensions, says on the dates and deadlines.

Buyers have the right to terminate a contract for any reason under the inspection clause.

Making the Lender aware of Inspection resolution so as not to change the Lender's side of the transaction is a much needed. Clarifying new forms was much needed.

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