Challenges with Low-End Homes

Solving problems on homes sold is an everyday occurrence. Yet the most challenging tend to be low-end properties.

The sale of this home presented problems from all sides.

The home, located in an old part of town, was listed for sale for a mere $79,900. Prior to listing the home, both the listing salesperson and the seller were independently misinformed by the municipality that the property was zoned residential.

Another Brokerage’s salesperson showed the home to Buyer 1 and an offer was negotiated for $75,000 on the condition that the buyer obtain a mortgage. Within days the buyer gave written notice that the mortgage was approved. One week later the lender wanted to have the property appraised—something that should have been done before the mortgage condition in the offer was removed, as this is an important due diligence aspect of mortgage approval.

This Lender approves buyers even if they have credit problems, charges a couple of points extra for risk and self-insures the mortgage. However, a property’s value has to exceed $70,000, must be very saleable, must not be in a poor location and must be in good condition.  

The Property Appraisal came in at some $6,000 less than the $70,000 criteria, the location was noted as poor and deteriorating and the property’s condition (roof, eaves, wet basement and chimney) needed repair or replacement. Further, the appraisal noted that the property was zoned commercial though it was used as a residence--a legal non-conforming use. As a result the lender turned down the mortgage.

The buyer was now in a bind since he had removed his mortgage condition and had no mortgage to fund the purchase of the house. Another mortgage agent tried to help but seeing a very poor credit report could not find a lender to finance the sale. As a result the property did not close and buyer was in breach of contract.

The property was subsequently sold to buyer 2 for some $5,000 less than the first accepted offer.

The Seller, on the day prior to the closing of the 2nd offer, was informed that she did not have enough money from the proceeds of the sale to close the transaction. She thought she only had a first mortgage on the property. On title search she discovered that money owed to a family member was registered on as a 2nd mortgage. She now had to borrow money to make up the deficit needed to pay off the registered debts plus costs to close the transaction.

The seller also released buyer 1 from damages caused because the zoning of the property was misrepresented, and so the seller could not take legal action for breach of contract.

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