Monday, January 03, 2005
Termite Report Takes a Bite Out of The Purchase Agreement
Have a client buying in Hawaii. It was smooth sailing...until the termite inspection report came in. Seems that there is a lot of termite damage that needs to be addressed prior to closing. Otherwise the property won't qualify for being collateral to the mortgage. It doesn't matter if the buyer is willing to accept the property in its present condition.
Lenders are concerned with 3 things:
- A borrower's history of repayment (partially revealed in the Credit Report)
- A borrower's ability to repay the loan (a continued source of income)
- The collateral used as a sort of insurance against loss of the borrower does not repay the loan (the property being mortgaged)
From a lender's perspective, protection again making a bad loan is to have collateral that can be seized. Lenders don't want your house. Worst case scenario, if you default on the loan and they foreclose on the property, they want to be able to quickly sell it and recoup the majority of their loss. If the property isn't worth as much as or more than the amount owed, then it will have to be sold for a loss.
So now the buyer and seller must negotiate who is going to pay for the work, and how that affects the price of the home. This is where realtors can really help you. They are apt to be better negotiators, or at least know the common practices for resolving such issues.
