What If Your Home Gets Damaged During Escrow

October 29, 2015

What If Your Home Gets Damaged During Escrow

After several weeks or even months of house hunting, going through numerous open houses and meeting with real estate agent, you have finally found your perfect home. You have signed the deal and handed your money for down payment and you are just waiting for the closing, suddenly disaster strikes and your soon-to-be home/ property has been damaged. This can definitely be stressful enough for both buyers and sellers but the question is who is going to shoulder the expenses and cost for repairs?

First is that we would have to know what happens during escrow. When a house is in escrow, this is where inspection and reviews are facilitated before the closing of sale. This is to ensure that there are no problems or issues that you were not able to see before you put in an offer. Here are some of the areas that are normally reviewed during escrow:

§ Title insurance
§ Homeowners Association documents
§ Property and liability insurance
§ Schedule of exclusions
§ Good Faith Estimate

All these take time to go through and review before the closing date arrives.

So when a home or property gets damaged during escrow here are some of the things that you need to do in order to move forward.

Check the Contract

Contracts provide access on how to deal with damage when and if it happens. Normally, the contract would state that if there is damage and it is less than five percent (5%) of the total value of the contract, both the buyer and seller agree to move forward with the transaction, however the seller will need to make necessary action to repair the damages before closing.

If it is more than five percent, buyers will have the chance or opportunity to cancel the contract without losing their earnest/ deposit money.

It is best that you check the contract and make sure that there is such clause to cover this type of provision. Usually it also provides coverage for appliances, boilers or central air conditioning systems that might get damaged.

Call your Lender

Most lenders will usually approve credit of up to 3 percent, but any more than that and the bank will want to be notified of the damage. It also could mean that you would have to re-do the loan process such as going through another appraisal or worst, the loan will be cancelled. What normally happens is that the lender will modify the loan, purchase price and send it back for underwriting. Since this can be time consuming, the time frames within the contract will also likely to be adjusted or extended. Also bear in mind that it is considered as fraud if you hide credits or serious damage.

Conduct a Property Inspection

Have the property inspected before closing because it would be very easy for the seller to claim that the damage was pre-existing. If there is no inspection, there would be no way to prove otherwise of their claim.

Do a Walkthrough Prior to Closing

Make sure that your contract includes a clause where it allows you to walk through the property or home at least once or twice before the closing. A lot of things can happen in hours and this will give you the opportunity to inspect and identify whether there is damage or something is not working properly. If there is any issue during this process, you can put a halt on the closing until it has been dealt with by the seller.

Remember that as a buyer, you are in the driver’s seat because the seller wants to close and get their cash. It is in their best interest to comply and do the necessary things in order to fix any problems.

While this may be something that can put of lot of pressure towards both the buyer and seller, knowing what should be done can help to lessen or ease out the burden during these unfortunate circumstances. It will also help if you team up with an experienced real estate agent who will be able to assist and guide you through your entire home buying or home selling process.

Source: http://www.zillow.com/blog/what-happens-home-damaged-in-escrow-184008/