Expert: Lori Frankfort - 6/7/2009

Question
QUESTION: Last week I have made an offer on a condo in the Cerritos Villa in City of Cerritos.  The bank made an counteroffer and stated in the counteroffer that the property is being sold as-is.  I sent an mold inspector today and found that there are mold problems in the kitchen and bathroom areas.  A couple of samples were taken and I'm waiting for the results.  However, the counteroffer only allows 5 days for inspection, and I'm wondering what are my rights in buying a REO.  Will I be able to negotiate/bargain if the place has mold problems?  If the bank refuse to negotiate (basically tell me to take it or leave it) and I decide to cancel my offer, is the bank required by law to disclose the mold findings to any future buyers?

ANSWER: The bank will probably make an exception to its 5-day inspection, otherwise they'd have to go through cancelling escrow and finding a new deal.  This would not be in their best interests.

Is there an agent representing the bank?  If there is an agent, print a copy of the mold report and personally hand it to them.  Technically the bank is not required to make any disclosures, but if the real estate agent involved has a copy of a mold report it would be unethical not to disclose it to the next potential Buyer.  So the answer to that question is, ethically yes, legally no.

Mold can always be repaired for a price, the bigger concern is finding out what caused it.  Was it a one-time incident or a recurring problem?  Is there a plumbing issue, or a rain drainage issue?

You can always ask the bank to pay for the mold problem... just because they say "as-is" doesn't mean they won't make concessions.  They just don't want to.  If there are other offers around then they will probably just tell you no, but if this is their one shot at selling they might be willing to negotiate.  In general, no, they don't make any repairs or concessions or disclosures or warranties.

Best of luck.
Lori Frankfort

---------- FOLLOW-UP ----------

QUESTION: Thank you for your quick reply.

I'm still a little confused about a few things.

First, I was told by my agent that they already have a few offers and are still accepting offers.  So, since we're not in escrow yet and from what you've said then I probably don't have much leverage with the five day inspection demand, correct?

Second, I was under the impression that California has already passed the Mold Disclosure Act and that all known mold problem must be disclosed  - is that not true?

As for what might have caused the mold problem, it seems like since it's a shared wall the problem might with both sides.  From our side it looks like it's from previous water leak in the sink area and also from the make shift venting the previous tenant installed.  The mold inspector said that if the spores count in that area is low then the cost for repairs is minimum.  However, if the count is high the cost would be in the thousands.  His recommendation is to try and get the problem fixed by them and have it retested before accepting the counter offer and to not accepted a reduction in price and fix it myself.  Is that plausible given what I've told you so far?  He also seems to think that the bank needs to disclose the mold problem to perspective buyers now that it is a known issue.

Sorry to be so long winded but I wanted to make sure that I've given you all the necessary information.  Thanks again for your time!  

Answer
First, I was told by my agent that they already have a few offers and are still accepting offers.  So, since we're not in escrow yet and from what you've said then I probably don't have much leverage with the five day inspection demand, correct?

IF YOU'RE NOT IN ESCROW YOU PROBABLY SHOULDN'T HAVE SPENT MONEY ON A MOLD INSPECTION.  HOW LONG AGO DID YOU PUT YOUR OFFER IN?  DID IT HAVE AN EXPIRATION DATE?

Second, I was under the impression that California has already passed the Mold Disclosure Act and that all known mold problem must be disclosed  - is that not true?

IT IS TRUE, BUT AGAIN, BANKS DON'T HAVE TO DISCLOSE BECAUSE THEY TECHNICALLY DON'T KNOW WHAT HAPPENED OR DIDN'T HAPPEN ON A PROPERTY.  IF THE AGENT KNOWS, THE AGENT HAS TO DISCLOSE.  IF THEY FIRE THE AGENT THE BANK WON'T HAVE TO TELL ANYONE ANYTHING BECAUSE THEY TECHNICALLY "DON'T KNOW" ABOUT THE PROBLEM.

As for what might have caused the mold problem, it seems like since it's a shared wall the problem might with both sides.  From our side it looks like it's from previous water leak in the sink area and also from the make shift venting the previous tenant installed.  The mold inspector said that if the spores count in that area is low then the cost for repairs is minimum.  However, if the count is high the cost would be in the thousands.  His recommendation is to try and get the problem fixed by them and have it retested before accepting the counter offer and to not accepted a reduction in price and fix it myself.  Is that plausible given what I've told you so far?  He also seems to think that the bank needs to disclose the mold problem to perspective buyers now that it is a known issue.

I'VE NEVER HEARD OF ANYONE ACTUALLY HAVING REPORTS DONE BEFORE BEING IN ESCROW.  THIS IS A BAD IDEA BECAUSE YOU COULD BE NEEDLESSLY SPENDING YOUR MONEY AND THEY DON'T ACCEPT YOUR OFFER IN THE END.  DON'T SPEND ANY MORE TIME OR EFFORT UNTIL YOU'RE IN ESCROW.  IF AND WHEN YOU ARE, YOU WILL HAVE A PERIOD OF TIME (AS OUTLINED IN THE CONTRACT) FOR YOUR CONTINGENCIES.  AS LONG AS YOU HAVE YOUR CONTINGENCIES IN PLACE YOU CAN STILL BACK OUT OR TRY TO NEGOTIATE WITH THE BANK.  

IT REALLY SOUNDS LIKE YOU NEED AN AGENT REPRESENTING YOU.  IF YOU MADE AN OFFER DIRECTLY WITH THE BANK'S AGENT THIS IS A BAD IDEA, BECAUSE YOU DON'T HAVE FAIR REPRESENTATION FOR YOUR SIDE.  YOU NEED TO BRING IN AN AGENT AT THIS POINT TO REPRESENT YOU.  BESIDES THE MOLD PROBLEM, YOUR AGENT WOULD RESEARCH TO MAKE SURE THERE AREN'T OUTSTANDING LIENS ON THE PROPERTY, WHICH WOULD BECOME YOUR RESPONSIBILITY AFTER YOU OWN THE PROPERTY, REGARDLESS OF WHEN THEY HAPPENED.

BEST OF LUCK,
LORI