So, recently I have had a client interested in a house that has a major problem with an attached garage and den – added after the original house was built. The problem with the garage and den is that it is impacted by a steep slope that has eroded part of the foundation beneath it and it is slowly beginning to slide down the hill. A geotech engineer’s report is included with the seller’s disclosure statement that spells out all the problems with this site and gives the engineer’s recommendations which include removing this portion of the structure completely.
Now, let’s take a look at what is the most likely scenario for a buyer wanting to purchase this house and the financing they might need to procure – if they don’t have all cash to buy it. My personal opinion is that since the garage and den are recommended for demolition and either rebuilding or just plain extinction that it is encumbent on the new borrower to give all this detail to a lender. Chances are, in today’s more risk averse lending climate, the building would qualify only for a construction or a rehab loan (perhaps the FHA 203(k) program) with the lender being given a detailed list of the problems and the plans for reconstruction – typically a timeline for completion is necessary for these and are limited to 6 months to 1 year.
My interested buyers currently have only looked at conventional loan packages so I directed them to inquire from their lender about these other options. I also emailed the listing agent to ask him if he had a lender that was aware of the problems and if they perhaps had a loan package that might suffice for purchase of the property.
Here is his reply with details of individuals/firms redacted:
Greetings,
I spoke with my lender, XXXXXX, at XXXXXX XXXXXXXX and she talked with
her underwriter who told her that as long as the appraiser didn’t mention
it, the lender would not be concerned about it.
We should have the cities approval on the new permit for the garage in the
next week or so if your clients are interested in building the new garage.
My clients have lived with it as it is since 1994 with no problems.
Let me know your thoughts.
This same agent told me that his clients had never lived in the property and that it had been a rental the entire time they owned it. So, yeah, I’ll bet they never had any problems with it.
Now, let’s take a look at the language that just came out from the NWMLS regarding the new law enacted in June 2008.
“Under some circumstances, omitting information about the property may be considered mortgage fraud. House Bill 2770, which became effective June 12, 2008, makes mortgage fraud a class B felony, punishable by confinement not to exceed ten years, or by a fine in an amount not to exceed $20,000, or by both confinement and a fine. Mortgage fraud has always been illegal, but the new law makes it clear that Washington lawmakers are increasing their efforts to punish those who perpetuate fraud.
What is considered mortgage fraud under House Bill 2770?
Section 9 of House Bill 2770 states that it is unlawful for any person, in connection with obtaining a residential mortgage loan to directly or indirectly: (1) defraud or materially mislead any lender or borrower; (2) knowingly make any misstatement, misrepresentation, or omission during the mortgage lending process knowing that it may be relied upon by a mortgage lender or borrower; or (3) use or facilitate the use of any misstatement, misrepresentation, or omission during the mortgage lending process with the intent that it be relied upon by a mortgage lender or borrower.
Section 10 of House Bill 2770 provides that any person who knowingly violates section 9 or who knowingly aids and abets in the violation of section 9 is guilty of a class B felony. ”
I don’t know about you – but I think that this might qualify if everyone just hopes that the appraiser misses the problem. Anyone else got a comment on what they think of the situation? I’ve told my clients to run, not walk, away from this one.
