Expert: Toni Yates - 8/30/2009

Question
QUESTION: I am buying a home with an FHA loan and found out that a termite/moisture inspection is not required for an FHA Loan. This totally amazes me! The home inspection we had found significant moisture problems and leaking drains under house.  Since the FHA appraiser isn't required/expected to go under the house (just has to stick his head and shoulders under) how would the underwriters know there is a problem with moisture and/or termites? Sellers don't want to make any repairs under the home inspection contingency.  We agreed (per our agent's suggestion) thinking the FHA minimum standards (no termites or moisture??) would force the sellers to make repairs.  Worried now that if repair costs are high and we don't think it's worth buying the house because of it we won't be able to get out of the contract.  Your thoughts, opinion on problem and what we should do?  thank you for your help.

ANSWER: Hi Katie-
Not a good situation. Does your contract have a home inspection contingency? Sure they don't WANT to fix it but what does your contract say? I hope you didn't just assume that FHA would be adequate. Check your contract. In Virginia, the state requires an independent pest/mold inspections which can allow the seller to repair the damage (again depending on the contract) or allow for you to walk- in which case they have to disclose it to the next potential buyers as a defect. If it was a pass fail inspection and the seller's are not required to fix it, I would first give them the option and then walk. Your agent should be working through this with you- they are a BUYER'S agent, right? Make sure everything is in writing.Hope this helps. Best of luck, Toni

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

QUESTION: Yes, we had a home inspection contingency but as I said when we asked for repairs of moisture problems based on the home inspection, they opted not to fix these things. Our agent said the Termite/moisture inspection in our contract would take care of the problem and also FHA Minimum property standards (no wet or rotted wood, no standing water, no major drainage problems).  So, we removed the home inspection contingency and are waiting on the FHA appraisal and the termite/moisture inspection.  There is a 1% cap on the repairs the seller is required to make on termite/moisture repairs but we think the cost will be significantly higher.  Contract states if the cost of repairs for wood destroying insects, moisture and mold collectively exceeds the 1% cap, we can negotiate the additional cost of repair.  If we don't like the results of termite/moisture inspection, can we walk without any contractual problems?  We DO have a buyer's agent but sometimes I think the agents just want to close a sale and hope the buyers/sellers don't know what they are doing.    

***  Virginia has a law that requires a pest/mold inspection?  I didn't know this.  How about moisture?

Thank you so much for your help.

Answer
Depending on the wording of your contract, it can cover wood-destroying "infestations". Again, depending on your contract, you probably can walk without penalty if the sellers don't agree to work with you on this and your agent should point out to their agent that the sellers are required to disclose material defects (which this sounds like) in most states which could impact future sales. They would be pretty foolish not to make it work in this market. Your agent may be the type who won't push it unless you do but they at least should advise you of all your options. If you don't feel like you are getting the answers you need- talk to their broker or consult an attorney. This can be a very big deal or a relatively minor issue. Hope this helps, Toni