In some real estate situations, the buyers may ask if repairs can be done before the closing of the sale. This is often the case for homes where financing isn’t possible; foreclosures with no heater, no stove and missing toilets as an example. For the sake of oversimplifying the matter, the answer is “no.” It doesn’t even matter if the seller agrees to this happening, the lender will not.
Lenders do not allow this because there is a risk that someone will default on the loan. A senior lien could be created against the property, and this becomes more of a priority over the first loan. If the debt isn’t paid and the contractor forecloses the property, the lender will never receive repayments for the debt. Of course, there is the possibility that the lender pays off the contractor, but lenders don’t want this issue. If lenders find out work has been done, they will refuse the credit.
Another issue is with the title company, which finds out the title has been altered and affects insurance. In fact, when the change happens, it can cause a lot of indemnification, which takes longer to close the sale, and can stop the closing entirely. Should the escrow not close, it ends up with the contractor going to the homeowner. The seller is then left with a mess, an annoyed contractors and a house that needs to be sold again.
Insurance issues also arise should there be destruction or damage during the updates. This is not something I am qualified to discuss, and a realtor will not able to answer your questions surrounding this.
Another popular question is whether repairs that have been contractually agreed upon can be performed before the closing of the sale. The agreement will usually state who will need to pay. The simple answer to this is “yes” because the contract is in place to determine who is responsible for payments and what will happen should something go wrong.
If a home is considered uninhabitable, a lender will not agree to a loan. However, the repairs cannot be done by buyers before the closing of the sale, even if it is to add heaters, toilets and other essential items. When a foreclosed/bank-owned property seller is looking for a buyer to pay in cash, it is a sign that financing is not available. You could get a great deal on a home if you have the money, but it is not feasible for most of the population. Hard money loans are another option, but that is a different animal entirely…