Advice on Financing Escrow Deposit Requirements?

Question

Hi BP family!

I just went under contract on a property in Cleveland Heights. We were notified that prior to the transfer of title, we will need to establish an escrow account with funds equal to 125% of the estimated cost of repairs of the code violations we are assuming.

I was wondering if you all had any advice/experience with this so that we can avoid coming out of pocket for this?

Appreciate any and all feedback, thanks!!

Nicholas Misch · Answer

https://www.clevelandheights.g...

David Terbeek · Answer

If you have a HML that will be providing draws as work is done, it may be possible to submit appropriate documentation to the city in lieu of escrow. This is noted on their Point of Sale Fact Sheet, see the last line.  I recall doing this with a client a number of years back.Escrow Requirement: If all Class A violations listed in 1329.051 on a Certificate of Inspection arenot corrected prior to transfer of title, an escrow account must be established and funds, in an amountnot less than $1,000 and equal to 125% of the estimated cost of repairs, must be deposited to pay tocorrect all violations. A rehab or 230K loan will be considered if it addresses all the Class A violations.

Cyle Harris · Answer

Agree with @David Terbeek comments above. I bid on a property in Cleveland heights and had to do A TON of research on the POS clause as this is not something we see at all in the metro Detroit area where I normally invest and came to the same conclusion. I also spoke with someone at the inspection office to confirm that this route was okay. Would definitely recommend that you visit their POS website to review all of the resources yourself to ensure you're prepared. Good luck

Aaron Moye · Answer

Thank you sir! And I appreciate the insight - I’m seeing if our HML would be willing to outsource fund control to the city via the escrow deposit since both parties essentially have the same incentives in terms of making sure the work is done properly?

Would be curious to know how other investors navigate this process since most lenders seem to advance rehab funds on a draw schedule. Will keep you updated on how this shakes out!

Advice on Financing Escrow Deposit Requirements?

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