Contract cancelled after we made repairs

[ThomistALW]

We live in South Carolina.

We were going to buy a HUD home. Our bid was accepted early in Feb. We submitted our contract, and HUD returned the signed contract 2/14. We put down $1,000 earnest money.

It was our first home purchase, but I'm pretty knowledgeable about real estate. I researched banks, and started working with a major bank. I worked daily to keep my realtor and bank coordinated. I started researching inspecotrs, appraisers, termite inspectors and lawyers, but they insisted they'd handle that stuff.

HUD wants closing in 45 days; we wanted the house; and we needed to give our landlord notice. So we gave a range of dates. Our realtor checked with the lawfirm, and after the law firm, the realtor and the mortgage officer conferred, they agreed for a date of March 15. We have an e-mail record of this correspondence.

Everyone knew it was an "as-is" purchase, that HUD would make no repairs, and we were not allowed to do anything to the house before closing.

I had a friend who's a retired contractor do an informal inspection for me. He turned up some stuff and recommended a contractor. The contractor looked at the house, I explained it was "as-is," and we scheduled the repairs for the day after the closing.

On Tuesday, March 13, two days before we were set to close, when my apartment was already given notice and our move was scheduled, the bank informed me we were *not* going to close on March 15:

the appraiser, even though he knew the purchase was "as-is," wrote the appraisal "pending." So the bank could not underwrite the mortgage without the repairs.

The realtor said, "Well, you can't do that. Have you cleared this with HUD?" The mortgage officer insisted it would be OK, since closing was otherwise all set to go (we thought).

So, against our better judgement, and caught between a rock & a hard place, we had the contractor come 2 days early. THe repairs were done on the 15th. The appraiser signed off on it, and the bank said, "YOu can close."

*THEN* they contacted the attorney's office, which said that
a) they *just* did the title search that day
b) they had no record of our intention to close on the 15th (but *we* have record that they knew it)
c) they found two income tax liens and a property tax lien.

These liens were placed on the house after the foreclosure but before HUD owned the home, so they say it's the responsibility of the original foreclosure attorney and the bank to clear the liens. As long as HUD owns the home, we'd have first right of refusal, but that will be 90 days before they reconvey the house to the bank. The bank has that 90 days to notify the IRS, who in turn have 180 days to remove the liens, so it could potentially take nearly a year to clear the liens.

We retain some faint hope that someday we'll be able to purchase that home, but, in the meantime, we're looking into buying another house in the next county.

HUD originally said they were giving us back our $1,000 deposit automatically. Then they sent this contract where we relieve them of all liability and relinquish all "claim" on the house. We refused to sign it.

So HUD has our $1,000 deposit. We poured nearly $2,500 into the house that we've potentially lost. Plus the realtor says that we'll be repsonsible for paying the appraiser and the termite inspector (the attorney is paid by HUD), although an attorney my mom consulted said the bank has to "eat" those expenses.

So we're trying to figure out the best way to recoup our money, whether to put a mechanic's lien on the house (after it reconveys to the bank) or to sue several people in small claim's court:

a) According to some people, the realtor should have never authorized the repairs (technically, he didn't, but he gave me the lockbox code, which--I later learned--he was not allowed to do). More importantly, he should have been more thorough in checking with the attorney's office to ensure they'd done the title search.

b) The attorney's office claims it only got the file from HUD's contractor on the week of March 12, but the closing scheduler at least knew of our plans to close. The attorney either should have 1) done the title search earlier or 2) informed us that they didn't have the file yet.

c) The appraiser, who wrote the appraisal improperly. HUD actually advised me to sue the appraiser, but the bank and realtor are covering for him, insisting he was "just doing his job."

d) The bank, for insisting on the repairs. But the bank is still our bank and mortgage company, so we are afraid to sue *them*.

Based upon my understanding of the situation, I feel we're better off pursuing either a mechanic's lien (after the house reconveys to the bank; HUD said that if we filed a mechanics lien against them, they'd charge us with trespassing) or simply taking the appraiser to small claims court.

What do you think? Do we have any chance of getting our $3,500 back?

[LindaP777]

OK, I'm a real estate investor and I buy HUD REO's houses all the time. I have questions. . .

Originally Posted by ThomistALW

We poured nearly $2,500 into the house that we've potentially lost. Plus the realtor says that we'll be responsible for paying the appraiser and the termite inspector (the attorney is paid by HUD), although an attorney my mom consulted said the bank has to "eat" those expenses.

How in the world did you pour out $2500 on an "as is" purchase when no work is allowed prior to closing? Inspections don't cost near that much. If you had the repairs done, then you are SOL. HUD would void the contract anyway, if they found out the work was done. You even signed a statement prepared by HUD to that effect when you submitted your offer.

Originally Posted by ThomistALW

HUD originally said they were giving us back our $1,000 deposit automatically. Then they sent this contract where we relieve them of all liability and relinquish all "claim" on the house. We refused to sign it.

If you want your $1000 back, sign it. If you want to wait on the house, let them hold the money. Typically, you will have first right of refusal even if they give you back your money.

Originally Posted by ThomistALW

HUD said that if we filed a mechanics lien against them, they'd charge us with trespassing

Absolutely, HUD will not be responsible for the cost of the repairs, that was your doing and you violated the terms of the purchase contract.

If you want to recoup your money, better be prepared to wait it out until you can get a clean title to the house!

[PghREA]

"the appraiser, even though he knew the purchase was "as-is," wrote the appraisal "pending." So the bank could not underwrite the mortgage without the repairs."

You probably had a FHA loan which does require certain repairs to be made before funding the loan. HUD will not do the repairs so it is up to the buyer to get the repairs done before the FHA inspector reinspects the house.


"The realtor said, "Well, you can't do that. Have you cleared this with HUD?" The mortgage officer insisted it would be OK, since closing was otherwise all set to go (we thought)."

The Realtor should have made an addendum asking for permission for the Buyer and/or his contractor to make the repairs which would have been signed by both the Buyer and HUD. The mortgage officer does not own the house - so how can her say it is okay to do the repairs. HUD owns the house and is the only one who can give permission for anything to be done to the house.

The appraiser and the pest inspector are independent people who did their job, they get paid by the Buyer whether the house closes or not.

My question to you is: Did you read all the addendums from HUD which you signed in addition to the sales agreement thoroughly? Most of this stuff is explained six to ten times in all those papers.

[LindaP777]

Originally Posted by PghREA

My question to you is: Did you read all the addendums from HUD which you signed in addition to the sales agreement thoroughly? Most of this stuff is explained six to ten times in all those papers. [/i]

Indeed! They are very insistent about that!

Again, I say, if you want to recoup your money, better be prepared to wait it out until you can get a clean title to the house! You've got no one here to blame, without blaming yourself.

[lcannister]

but I'm pretty knowledgeable about real estate.

Apparently not.

Do we have any chance of getting our $3,500 back?

You have a chance at getting your 1K back if you sign the document they ask you too, nothing more.

[ThomistALW]

I was well aware that we were not supposed to do it. The bank said, "We won't underwrite this mortgage unless the repairs are made."

It isn't an FHA mortgage; it's the way the appraiser wrote the appraisal. He even knew it was "as is," and wrote it on the form, but he put "value pending repairs," so the bank couldn't underwrite without the repairs.

My point is this: the attorney's office should have done the title search in February. They did the title search in March.

The realtor should have been more thorough about making sure that was done, when I kept calling and e-mailing him every day, saying "Has this been done?". If the title search had been done in a timely manner, nothing else would have happened, because these liens would have turned up first.

LCannister,

"Apparently not."
Passed the licensure exam in a half an hour. I'm knowledgeable about real estate. What I'm not knowledgeable about is dealing with incompetent bureaucrats.

Linda,
"OK, I'm a real estate investor and I buy HUD REO's houses all the time"
That's nice. But just reinforces the point my wife and I have been saying this whole time: The system exists of the rich, for the rich and by the rich. We were put over a barrell, and we didn't have the resources to get out of it.

"You've got no one here to blame, without blaming yourself. "
That's funny, because even HUD is saying the blame goes to the bank and the appraiser.

Pgh,
"The Realtor should have made an addendum asking for permission for the Buyer and/or his contractor to make the repairs which would have been signed by both the Buyer and HUD"
THank you. This makes sense, but this is what everyone in the situation said was impossible.

"The appraiser and the pest inspector are independent people who did their job, they get paid by the Buyer whether the house closes or not."
Even if it's the fault of the seller that the contract falls through?

[PghREA]

My point is this: the attorney's office should have done the title search in February. They did the title search in March.

I agree on this. HUD sends closing instructions to the settlement company. Did you let HUD pick the closing company?

The realtor should have been more thorough about making sure that was done, when I kept calling and e-mailing him every day, saying "Has this been done?". If the title search had been done in a timely manner, nothing else would have happened, because these liens would have turned up first.

One of the Realtor's jobs is to get you through closing. However, if the settlement company is not listening to her, there is not much she can do.


"The appraiser and the pest inspector are independent people who did their job, they get paid by the Buyer whether the house closes or not."
Even if it's the fault of the seller that the contract falls through?

Yes

[moburkes]

The appraiser wrote pending repairs on the appraisal stating that the appraisal was based on the repairs being done, NOT stating that YOU needed to complete them. He was simply saying that if the repairs that he noted were made, the house's value would be "X". The bank chose not to write the mortgage based on the amount of problems AND/OR based on the value of the property without the repairs. Not because the appraiser did something wrong. He, actually, did everything right.

[HUD-1]

I have seen many HUD Homes that do not meet code and a lender would never make an as-is loan on. The appraiser was merely pointing out required repairs. I see no liability there. HUD NEVER allows repairs to be done to the HUD owned properties property beforehand. Clearly you were tresspassing and would have been in a real bind if anyone was injured in the house while the repairs were being made. I am not an attorney, but aren't mechanic's liens filed by contractors that have not been paid, not by a potential buyer? Now look at the standard HUD Sales Contract "Seller may rescind this contract and return all or a portion of Purchaser's earnest money deposit under the following conditions: ...seller is unable or unwilling to remove valid objections to the tille prior to closing." "Purchaser may not perform repairs nor take possesion of the property until the sale is closed."