Lender - Mold

7 Replies

Hi BP.

Could a lender require buyer to conduct a mold inspection? Even though buyer has waived it and contingency period is already over.

Any advice would be helpful.

Thank you.

Technically, a lender can require any kind of inspection they want as long as they consistently apply their underwriting standards, so there is no hint of any sort of discrimination. My question is, why would they?  

Your question presupposes there is some reason they might want an inspection that isn't considered standard. 

@Hattie Dizmond

Thank you for responding, Hattie.

Here are the details.

Buyers agent had put this wording in " seller will treat mold" as buyer thought there was signs of mold. I counter this contact with this "buyer will pay for the mold testing and we would follow up as per contract agreement.

Buyer had a whole house inspection and inspector didn't find any mold. Therefore, buyer later waived mold inspection and we would be closing on coming Monday. All of a sudden underwriter asked for mold inspection to be performed. Keep in mind buyer is having a conventional loan.

Any reply is appreciated.

The lender can require the mold inspection. Their motive behind this, is to absolve themselves of any liability. If in the future anyone is inquired by living in a home with mold or if anyone is harmed by the mold in anyway, their covered.

They sold an asset with full disclosure to the buyer. If anyone gets sued, it will be the end buyer/owner. 

That makes sense. Unfortunately, the lender is absolutely within their right to ask for a mold inspection. The buyer's name might be on the title after purchase, but the bank has a first position lien. Since the black mold issues surfaced in the 90's, many people have simply walked away from homes that were found to have mold. Banks are in the money business, not the property management or RE business. They want to do everything possible to ensure they don't end up holding a non-performing asset. 

Unfortunately, by officially disclosing a suspected potential mold issue, instead of having an inspection and then disclosing an actual issue or remaining silent, because no problem was found, the seller set this train in motion. 

Unfortunately yes, and I have actually dealt with something similar on a refi. Even though the buyer has waived the mold contingency, this would fall under the financing contingency since the lender is the one asking about it.

On mine the appraiser noted "possible mold" in one of the bathrooms. In actuality it was just some mildew/dust accumulated around the A/C vent in the bathroom due to condensation. It was a patch maybe 1.5' X 1' and wiped off the paint/vent with normal cleaning i.e. a wet cloth. I had to hire my inspector to come out and he did two air samples indoor vs. outdoor, and a swab test. As suspected nothing to worry about. Still cost me $300 to satisfy the lender. It did however remind me I needed to install a bath fan in that property since it wasn't built with one originally.

The takeaway; before any appraisal, inspection ect. make sure there's nothing that can be mentioned as "mold" or you will be paying to satisfy the bank to that effect.

A loan underwriter's primary purpose is to discern risk, then to mitigate or avoid unacceptable risks.  If a Real Estate Purchase Contract ( REPC) mentions evidence of a possible adverse condition, then an underwriter would have a duty to demand clarification of that situation before approving the loan.... My own career history includes a related incident,  a low-income customer was scraping for every penny to get into a very old farm home that shared a septic system with the adjacent newer home built by the same farm family.  A generation later the two properties were divided and sold to separate non-farm families as the farm land became a residential subdivision.... My underwriter asked for an inspection of the septic system.  The Borrower ( loan applicant ) wanted to avoid the $200 fee and negotiated to have the lending stipulation changed so that funds could be released only after the Borrower signed a  " Hold Harmless Agreement" addressing the septic system....  Later the larger neighboring property was acquired by a family with several children.   The additional sewage flow from the new neighbors overloaded the septic system and caused sewage backup into the older residence when the new family did laundry...   My Borrower went to her Realtor to seek damages for "being sold a defective property."   The Realtor, in turn, sought to indict me, the lender as the culprit.  The Realtor said " The mortgage lender should have demanded and inspection of this property before making the loan. "....  Happily,  I maintain logs of my customer interactions,  I showed my history of the underwriter's  loan stipulation --originally demanding an inspection (which the Borrower protested ) and the eventual  Hold Harmless agreement....  The end result:  The Borrower had to pay the full cost of installing a separate septic system for her home.  ( That cash cost  was  about twice the amount of her initial out-of-pocket investment to acquire the property.  It was more than 400% of  her monthly gross income and probably about  20 times her monthly discretionary income. ).....  This could have been a situation where the financially overwhelmed homeowner/mortgage borrower elects to walk away from the house-- that would result in a significant loss to the lender.   This situation also demonstrates how all parties were forced to abandon their productive efforts (seeking new business ) as they were forced to devote their time into the non-productive time spending in defending their position from the accusations of the aggrieved owner of a defective property.....  All parties will benefit by addressing any defect up front  ( except the dishonest property who seeks to obtain more than the true value of his property by concealing a defect ).. As Billy Joel sang..  DO  IT RIGHT THE FIRST TIME, THAT'S THE MAIN THING ;-)

@Stan Johnson

Thank you for responding to my post. That is some value able information. I agree with you about starting right from the beginning.

JAMES

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