Homebuying and Homeselling fiasco...snowflake details inside.
December 2, 2013 12:01 PM   Subscribe

Can you offer some advice on how my wife and I might recover some funds spent to satisfy a lender's requirement prior to denying the loan of the buyer, or how we might be able to continue with the purchase of a new home we're in contract for?

My wife and I have had our home on the market for several months, and were lucky enough to find a buyer. He happened to be an FHA buyer, so there were some stipulations on the home we had to agree too - one of the major ones being we had to put on a new roof, fully paid for by us. This is something we were willing to do as we had our home on the market for several months, not to mention the buyer was offering full price as sort of 'compensation' for his lender making that kind of demand. There were several other quite constraining factors like closing within 6 weeks (we had not found another house yet), and fronting $2000 in closing costs. The market value of the home was ~$120,000.

Luckily, several days after accepting the offer, my wife and I found a home we fell in love with. It was a great home that had sat on the market long enough that the price had fallen low enough for us to have instant equity, large enough for the family we want to have, and in a great community we had wanted to live in for quite some time. We were counting on about half of the down payment money to come from the equity in our current house. We eventually got into a purchase contract for the home, and are ecstatic!

Fast forward two weeks - some devastating storms ravaged the community our new home, destroying several hundred homes within the same price range as the home we are buying. Needless to say the supply for homes in that price range is very low - in fact the day after, 15 families called about our new home hoping it was still available for purchase.

Several days after, we find out the buyer of our house is going to be denied the FHA loan he was counting on to purchase our current home, and seems to in general have lost interest in purchasing.

Here is our current situation:
-Buyer of current home is getting a Notice of Denial to legally allow him out of the purchase contract.
-We have spent nearly $5,000 of unplanned money on our home to statisfy the previously enforced FHA rules his lender had.
-We will no longer have the funds to buy the new home we are in contract for (we do have a clause that is contingent on close of our existing home)
-If we do not purchase the house we want to move to, it will most certainly be snapped up in a matter of days for well over what we are in contract to buy for, and the supply of homes in that price range will depleted for quite a long time.

Do we have any recourse in recovering funds we were forced to spend by FHA regulations? Any advice on how we might still be able to follow through on the purchase of our new home?
posted by drewski to Law & Government (7 answers total)
It is not clear how close your current home is to your hopefully new one, but would one of these storm buyers be interested in your old home? Might they need to close quickly?
posted by JohnnyGunn at 12:14 PM on December 2, 2013

Do we have any recourse in recovering funds we were forced to spend by FHA regulations?

Not sure if you have legal recourse, but as a practical matter, you've added to the value of your home. If you had to replace the roof, it means it was really old, in really bad condition, or both. Any buyer is going to want that reflected in the price, like any other imminent major repair. It may not be a 1:1 value, but a new roof is a value add nonetheless.
posted by snarfles at 12:18 PM on December 2, 2013 [5 favorites]

Your post is a bit unclear - you said the FHA loan required a new roof to be installed at your expense, and you said you spent $5K to "statisfy the previously enforced FHA rules" - does this mean you actually got the new roof? I.e., did someone (a contractor) provide parts and services to you for your money? Because if so, my inclination is that you certainly CANNOT "recover" these funds from anyone - you used that money to buy a new roof! You got the new roof! Because of the nature of roofs, you cannot return it.

I would say you should see if any family can front you the $5K ASAP. Or if you can get a secondary loan lined up, also ASAP.
posted by Joey Buttafoucault at 12:19 PM on December 2, 2013

Does the buyer who is backing out have any contractual obligation to you since you are have started work on replacing the roof? I'm curious what your realtor thinks about this to see if there is any recourse there. The larger issue may be that the lack of a buyer will make it hard to close on the other house you like, which I don't have any ideas on.

In general, I'm fond of resolving these sort of concessions in a way where the buyer gets a price break to run point on repairs they want to do. You get a couple of estimates and offer the buyer the median value as a concession on the sale. One way of looking at this is if you sold for $115 instead of $120 (using your $5k figure on the roof) then that also reduces the basis for commission a little. I'm not out to screw over the realtor, but in these situations I think it works better for the buyer to handle these things themselves because every project has finishing issues and it is no fun putting on a new roof and having someone complain about one poorly laid shingle.

Not that this helps much, but I offer the above advice since you will likely be discussing concessions with another prospective buyer.
posted by dgran at 12:21 PM on December 2, 2013

Bridge loan. That's what they are for.
posted by Gungho at 12:30 PM on December 2, 2013 [7 favorites]

If owning this home is your hope of heaven, look into a "Bridge Loan" to close on the new house. You'll be paying two mortgages but you'll have secured the home you want. This will give you some breathing room.

If your financial situation is precarious if you don't sell your current home, let all the deals fall through. Wait, and start again in a couple of months. There are houses on every corner, the one you have a contract on is not the only house you'll ever love.

Yes, the situation in the neighborhood you desire sucks, it means that prices will go up and you may be priced out of the neighborhood. I'm sorry, it happens.

Have faith that better neighborhoods will present themselves. For whatever reason, these deals weren't meant to be.

Can you close on the new house if you rent out your house? Can you do a refi on the old house and combine it with the new house?

You really need to talk to your realtor about creative ways to get into the house you love.

As for suing the bank or the buyer...yeah, I doubt seriously that will get you anywhere. The contract doesn't favor you.
posted by Ruthless Bunny at 12:36 PM on December 2, 2013 [2 favorites]

yeah, bridge loan. another option, since you're still in contract for the new home and it's apparently appreciated quite a bit overnight, could you flip it to one of those 15 families, maybe get them to bid against one another and make a quick score? this could be done with a double escrow where they close at the same time.
posted by bruce at 12:47 PM on December 2, 2013 [2 favorites]

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