Escrow for Repairs process with a REO

5 Replies


So I have been in negotiations on a foreclosure property. The property needs about 10k in repairs in the property. The price they are asking for I believe in my opinion is the ARV price. The Bank is offering a sellers escrow for repairs to maintain there asking price. All the damage in the property is cosmetic. I'm waiting to hear back from the bank on what the repairs consist of. My question is how does a sellers escrow for repairs work? Has anyone done a deal like this with a REO property? I googled it and got a basis of what it means but want to get a more in depth answer and a step by step of how that process works. Thanks in advance for any help that's sent my way.

@Paul Stewart

Nothing complicated about it. Most common way mandatory repairs/issues are dealt with.

As an example, let's say they need to install handrails in order to qualify for FHA financing. Instead of holding up the closing, some of the proceeds from the sale will be held in Escrow until the seller fixes the needed repairs. The deal gets to close on time, the work gets done, the work inspected to the buyer's satisfaction, then the money is released form the Escrow.

This can work just as well for open permit issues and other paperwork that might take too long.

Anytime you ask for repairs, you risk holding up the closing. Sometimes it's easier just to get money knocked off the price and do the work yourself. But, sometimes the issues needed to be dealt with might prevent some types of financing, so the Escrow method is one way to stay on track.

This also assumes, of course, the lender agrees to it.

@Christopher Phillips Thanks Chris!

 So The bank is the one who has brought up Escrow for Repairs. For me to close on the house with the cash I have I need the repairs to be fixed. I could fix them myself but with this property the Taxes are very high I know when I grieve them they will go drop extremely but because I have to pay the Taxes in closing it takes away some of my money I would have used for repairs and kind of disrupts the math on the property. Let me ask you this the Repairs are being take out of the sale price of them home correct? So its not a additional amount I have to pay. It is X amount taken out of the sale price to pay for the repairs correct? 

@Paul Stewart

Doesn't really change the sales price.

Example (ignoring closing costs):

$75,000 house. You want the handrails put in. Bank says okay.

All the proceeds will be released at closing except $1,000 will be set in Escrow for the handrail work.

The work gets done, then the $1,000 gets released to the bank.

You laid out $75,000 like normal except you got to close on time and got your handrails put in.

Holding money in Escrow is just to prevent the closing from being held up. It doesn't affect the price.

If you want a "discount" for the work needed, then you would lower your offer to the bank or suggest a credit of $1,000 to be given at closing. Then your net proceeds to the bank would be $75,000 less $1,000 or $74,000.