Hello- I'm closing on my first duplex is NE Minneapolis on Tuesday, and on Friday they informed me that the seller had not yet completed the updates mandated by the city in the TISH report. The seller seems to have inherited this and several other properties at the same time, and according to them, there was confusion about who was responsible for this and ultimately they dropped the ball. I have the option to either delay closing indefinitely until they make these changes, or it has been proposed to put a good chunk of money ($20,000) into an escrow account from which I can draw to make the changes myself, after which the remainder will be returned to the seller. I would have 90 days to complete these changes. It seems like a good deal to me, because I am able to hire the professionals that I'd like as opposed to if they were to hire someone to do a subpar job for less.
I just wanted to check in on the forums if any investors have done this, and if there are any unforeseen big problems I may be missing here.
It's all about the details on this one. Escrowing money should be fine if it's handled well and your risk is mitigated. Typically, we ask for our clients 1.5x what bids on the repairs came in for. Have you gotten any bids on the work? 20k seems like a lot for TISH repairs, usually, Mpls likes to flag smaller health and safety repairs. Must be some big items on there. Also, does the property have a current rental license with the city? I've seen those inspections and requests from the city to obtain a license to be more involved and expensive than the Tish. I dont ever like to just take someone's word on things like this, usually, we are dealing with decent people and mistakes happen but there is a lot of incentive to "just close" and I personally like to get as much info as possible before making a decision. What is your agent recommending (assuming you're not dealing directly with the sellers) ??
Taking a step back, did your purchase agreement require the seller to make the repairs? If you purchased it as-is you may be responsible for the repairs. The seller's can pass them to the buyers but it isn't always the seller who pays for them.
I purchased a place in St. Louis Park that had major TIH required repairs including the roof. We purchased the property as-is and at closing the city required the seller to transfer $15k of their proceeds to an escrow account and it was held until WE made the required repairs and got them signed off. Our agreement stipulated we had to complete them within 90 days.
Unless your agreement requires the seller to make the repairs I am guessing you will have a similar arrangement. I believe this is all different based on which city or who is regulating the housing, MPLS may be different. Call the city on Monday and see what the options are, it is entirely possible MPLS may not let the seller pass on the RRs and it may delay closing. Also double check your contract because the seller may not be liable.
@Hannah Diment I think the big question is, do you know how much these repairs should cost? If not you should figure that out before you agree to close. If they should be 15k or less then it's best for you to pick the contractors and make sure the work is done well.
In my instance the city decided the amount required to be withheld. Not sure how MPLS works. The neighbor had a different arrangement where he had to pay the escrow balance (was a lender owned property) and he got his money back after making the repairs. His repairs weren't huge outside of having to remove a toilet installed over a floor drain.
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