Expert: liznarr - 9/25/2009

Question
I am selling a residential property without any real estate agents involved. The purchasing couple have lived in the home for some time. As the home was about to be sold I found out the septic system needs to be replaced. As we are finalizing this replacement with a one page addendum to the contract, I have noticed that the purchaser has now changed from the couple to just the wife.Questions? Don't I now need a new revised contract to reflect that "purchaser status" change? Second, I have concerns about this couples finances and their ability to get a loan, what loan information am I entitled to. Last, I am paying for the repair which will take some time, do I have the obligation to set aside the money for the $8000 repair in escrow or can I pay it directly and what are the pros/cons of either choice. Thanks

Answer
Hi Carol,

As to a revised Contract, I would ask if the husband is now intended to be a co-signer, or if the Contract should be in the wife’s name only.  And, yes, I would address this ASAP and address any changes needed.  One Purchaser, without the other, may not be able to qualify for financing, as you have already suspected.  

As to this Purchaser’s ability to get a loan, you should require a pre-approval letter from his/her lender (as opposed to a pre-qualification letter which sometimes can be worthless if the PQ letter is based only on verbal information from the to-be Purchaser).  Lenders will never give out confidential information during the lending process, but with the Purchaser’s permission in writing, a lender can update you on the status and progress of the loan.

If Purchaser says the pre-approval letter will take some time, write in the Contract something to the effect that if pre-approval letter, satisfactory to Seller, is not produced within “X” number of days, the Contract could then be made null and void at your option, with all earnest money being refunded to Purchaser and neither party having any further obligation to the other.  You probably should consult with an attorney for proper legal wording.

If you agreed to give an allowance “at closing” for the septic system, then you would do exactly that, give up $8,000.00 at closing.  To me this would the better way to go (allowance at closing to Purchaser).  If there are problems during installation beyond your control, or if the project should end up costing more money, you are out of the process at closing (notwithstanding any contract language to the contrary) by just “passing on” the $8,000.00 to the Purchaser.

If you have the obligation to set aside $8,000.00 in a repair escrow AND make the repair prior to closing, you need to do exactly that.  If your Contract says YOU are to actually make the repairs prior to closing, but still set the money aside, then I would think payment could be made from the money set aside in the repair escrow once the work is completed.  I would make sure the contractor doing the work is both licensed and bonded if YOU pay for AND have this repair made prior to closing.  Ask how long the work is warranted, also.

Since I have not seen your Contract, my answers above are general in nature.  You probably should consult with a good attorney in your area for legal advice.

Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth