Is she on the hook for delaying the closing?

November 12, 2009 5:45 PM

Our daughter was set to close on her first house tomorrow and to move in to her new home this weekend. Today at 4 PM, her real estate agent called.

The seller (the bank, the house is a foreclosure) will not sell and/or FHA won't finance because some flashing around the roof has started leaking and perhaps has damaged some drywall in the house.

Our daughter is too upset now to even discuss it. All she's saying is that she will have to hire the workers, arrange for the real estate agent to let them into the house, and pay to fix the roof and the drywall before she can close.

She also is certain that she is obligated to pay $100 per day until she can get that done, get the house inspected and reappraised, and close. Because it's raining cats and dogs around here, she can't get the roof repaired for a few days---not to mention the drywall. And then she'll have to keep paying $100 per day until a new closing can be scheduled. Yikes!

Her house-to-be is in Virginia (Alexandria), and I haven't read the contracts she's signed with FHA and the owner. She is insisting that she's on the hook for everything, all the repairs, and $100 per day no matter what and she's completely freaked out. She's crying too much right now to be of much use informationwise.

Does her interpretation of this situation sound right to anyone? It sounds weird to me that she could be fined for delaying the closing, but I really don't know much about this kind of thing or how standard contracts read.

Any advice?

posted by WyoWhy to law & government (15 comments total)

How can we know without seeing the contract? Sounds fishy to me, but then I don't know what the terms of the agreement are.
posted by dfriedman at 5:51 PM on November 12, 2009

Why is she paying money each day? Who is she paying?
posted by odinsdream at 5:51 PM on November 12, 2009 [2 favorites]

This makes no sense to me. Until she closes on the house, doesn't the bank own the house, and therefore wouldn't the repairs be their problem?
posted by runningwithscissors at 5:54 PM on November 12, 2009 [4 favorites]

Agree with runningwithscissors. Is the realtor part of a trusted network? This sounds incredibly sketchy (not the repairs bit, but definitely the rest of it).
posted by Night_owl at 6:02 PM on November 12, 2009 [3 favorites]

We bought a short sale recently and the bank balked just a couple of days before the closing, saying we had to repair some things before closing or the deal wouldn't happen. I refused to pay before closing, but they agreed to us putting 1.5x an official estimate for the repairs in an escrow account and have the repairs completed by 15 days after closing. Our very well respected realtor said that paying for the repairs before closing was not unheard of, especially in this economy.
posted by sulaine at 6:11 PM on November 12, 2009 [2 favorites]

We bought a foreclosure a couple years ago & had to pay the overdue electric bill b/c the inspector wouldn't sign off till we could prove that the electricity was on & working properly. I believe we also had to replace a hot water heater & part of a cast iron pipe, but it's been a while. We got the realtor to reimburse us for the electric bill, but the other stuff we paid on. I'm pretty sure we could've walked without penalty, but we were on the hook for the repairs b/c it had to do with the building passing inspection.

The $100/day thing sure sounds fishy, though.
posted by oh really at 6:15 PM on November 12, 2009

I have to say that it sounds awfully fishy to me. It's vital to know whether it is the seller (bank) or the FHA who is refusing to proceed. It doesn't make sense that the bank would balk, so most likely it's the FHA.

Does she have a lawyer? Here in Massachusetts it's normal for both buyer and seller to have legal counsel, but having sold my late father's house in Michigan recently, I know that's not necessarily the norm elsewhere.

If she has a lawyer, he or she should be dealing with this. If not, I'd suggest lawyering up; it might cost a couple thousand dollars but it would probably be money well spent, especially since a real estate lawyer would not only deal with this particular situation but also review all the relevant documents for anything else that might be amiss.

Another question: how much of a deposit did she make? If she threatened to walk away from the deal, the seller might become more conciliatory--though in my experience, banks selling foreclosed properties tend to be penny-wise but pound-foolish. Again, I'd suggest talking to a lawyer.
posted by brianogilvie at 6:25 PM on November 12, 2009

The seller makes the repairs. The FHA won't make/back the loan. Was this problem discovered as part of the inspection? Do you have a copy of the inspection report? Pay $100 a day to who?
posted by fixedgear at 6:43 PM on November 12, 2009

We bought our first home with an FHA loan, and ran into similar problems. The deal was held up due to exposed wiring in an unfinished garage, a broken window, and a integrated stove/microwave/hood range with a microwave that would not turn off when you opened the door among other things. We were told that the seller had to fix them or the deal was dead. We were not *allowed* to take care of them ourselves, even with the sellers permission. My realtor was able to get them to do everything except deal with the range, which he replaced.

Yours is not the first scenario I've heard of about the FHA holding up a deal due to very small things. Find a way to get them fixed.


I'm not sure about the $100 a day thing - sounds like some sort of escrow penalty?
posted by Big_B at 6:45 PM on November 12, 2009

The FHA has requirements on what condition the property can be in for them to do the loan, and not having water pouring into the house is almost certainly one of the requirements.

Whether or not she can back out of the deal if the FHA won't do the loan, who pays for repairs required by the lender, fees for not meeting the closing date and what circumstances would or would not require her to pay those fees, who the fees are paid to -- she needs to sit down and read her contract.

It does not matter one whit how standard contracts read, it matters what hers says. If she won't read it for some reason, see if she will get you a copy.
posted by yohko at 10:50 PM on November 12, 2009

Our closing also got delayed when FHA got cranky at the last minute about a couple of repairs. In our case, we paid for one repair and the sellers paid for the other. I don't remember the details, but there was something about putting our payment in escrow so if the sale fell through we'd get our money back so we wouldn't have paid to fix someone else's house. We didn't pay any kind of additional per-day fee for the delay.

But as others have said, I'm sure this is all very contract-dependent.
posted by Stacey at 3:15 AM on November 13, 2009

Check with a lawyer, but this is likely -

The problem is for the seller to fix, unless the contract says otherwise. The $100 per day would apply only if the closing were delayed based on something she has done.
posted by yclipse at 4:41 AM on November 13, 2009

The $100 a day is almost certainly carrying costs: it costs the bank money to pay the interest on the loan for the property, and they're having your daughter pay those costs for them. That said, it's complete BS that your daughter would be stuck paying carrying costs when the delay in closing isn't her fault. Since FHA won't approve the loan with the property in its present condition, the bank has a problem, and it's up to them to decide whether to repair the property or renege on the sale (depending on the P&S your daughter has signed, this might be as easy as notifying her, or might be an incredibly drawn-out process involving paying your daughter damages). In either case, they can't compel your daughter to pay carrying costs without a contract spelling that condition out. When I closed on a house a few months ago, that agreement was a separate document completely.

You can probably see that all roads here converge in the same place: your daughter should be on the phone with her lawyer immediately. (She does have her own real-estate attorney, unaffiliated with the possibly-shady realtor, right? If not, this would be the time to start looking for one on Yelp. It looks like you're in DC, so I bet you'll get some great recommendations from AskMe, too) He will quickly inform her that the $100 a day charge is bullshit, and will probably helpfully point out that your daughter is incurring damages from this last-second shenaniganry: has she sold her old place? Is she stuck paying for temporary residence while this gets sorted out? Are the movers she hired demanding money for a last-second change of plans? Are her pets going to be stranded? These are all material damages that are pretty clearly not your daughter's fault, and even if she can't recover that money, a call from a lawyer to the bank pointing them out will probably go a long way toward getting the house repaired as quickly as is humanly possible.

Meanwhile, my advice for your daughter: relax. There's nothing she can do to make the rain stop, or to get the contractor out to the house to perform the repairs. The mortgage rate isn't going to expire in the next week or so, and as long as she has somewhere to keep her family and her stuff (short-term storage is dirt cheap, and worst-case for her family is moving in with friends or into a hotel for a few days), then this isn't the end of the world. Having a closing (especially on her first home) in such close sight, and then seeing it pulled away at the last second, is absolutely gut-wrenching, but it'll make for a good story at cocktail parties in a few months' time. It'll all work out!
posted by Mayor West at 4:52 AM on November 13, 2009 [1 favorite]

I've purchased a foreclosure and dealt with HUD issues and balking lenders. I vote for "not fishy".

Here's what I think is going on.

Your DAUGHTER'S lender is refusing to fund until the repairs are made. This is the same thing that happened to me. It's much more common with homes bought out of foreclosure than in "regular" inspection situations.

The DELAYED CLOSING FEE of $100 is (probably) being assessed by the seller, which is (probably) a different bank than the lender. The fee is (probably) in the purchase contract. Just because the buyer's lender is being a jerk / doesn't have its act together -- that's not something the seller cares about. They're not closing when they wanted to, they're allowed to put delayed closing costs in the contract.

In more civilized parts of the world (hah), between private sellers, the parties can often point out that "shit happens" and these fees get waived. The government is less forgiving.

In better economies, a lender pulling the last-minute inspection / contingency would be worried about reputation hits / bad publicity. Your daughter has SOME leverage here, but not that much.

This is not legal advice. IANYL.
posted by QuantumMeruit at 7:27 AM on November 13, 2009 [1 favorite]

She needs to lawyer up.

When I bought my house in 2003, there was shadiness at the last minute, and I (being young and naive and having already given my notice at my current place and such) went ahead and signed the deal, and it has given me infinite troubles ever since. If I had had a lawyer with me at the time who was representing ME, not the one representing the seller? Things would have been a lot different.

Lawyer lawyer lawyer. Her OWN lawyer, not affiliated with ANY of the other parties including her realtor. Then the lawyer can advise her on what to do.
posted by oblique red at 7:50 AM on November 13, 2009