Closing

Closing on a foreclosure? Hard. Closing during the housing crisis? Hard. Closing on a foreclosure during the housing crisis? Really hard.

The first lender we worked with was our credit union. This started out really well: they had the best interest rate. When we were in the office getting paperwork, we mentioned that the roof needed work. The guy stops and says something like, “Well, if it comes up in the appraisal, the underwriter is going to require that you put funds in escrow to fix that.” In fact, it’s much worse than it sounds. The underwriter would require us to get a quote from a certified builder to fix it, then require that we put 1.5x that into escrow, then require us to fix it within a certain amount of time (e.g., 60 days) using our own separate funds, and then after it passed inspection, they would give us the escrow funds back. That’s right, we’d have to have 2.5x the money on hand to fix whatever problems came up in the appraisal. Yikes. But apparently that's the way things are these days.

But an appraisal is not an inspection, so chances are nothing would come up, he said. So the appraiser came, and the report was scathing. Every little crack was cited, and used to claim that there might be foundational damage (Orsi’s father had previously said the foundation was in excellent condition). The house was then valued at barely more than what we offered. Things were not looking good. When we heard back from the underwriter, they wanted a structural engineer to go through the place, and a mold inspector, and would only give us a loan for much less than what we offered. In the meantime, the selling bank wanted to close within a few weeks or else they were putting the house back on the market. Things were not looking good.

While we were waiting to hear back from the underwriter, we went ahead and got an inspection, which confirmed that the foundation was in excellent shape. The inspector still wanted to discourage us from buying the house given the amount of work it would be (he had done a similar thing with his wife, and said he would never do it again). But we have something he didn’t have: Orsi’s dad :)

We also got in contact with another lender. The new lender looked at the appraisal and couldn’t believe the underwriter would accept it. “Besides the numerous spelling mistakes, they cited cosmetic things that shouldn’t be taken into account, and compared to completely different kinds of homes.” This guy said he could get us to closing in a week using something called a “portfolio loan.” The way this works is, you get the funds to buy the house at a slightly higher interest rate, with no appraisal required. Then you get up to a year to fix the house up, at which point an appraisal occurs and the loan is rolled into a standard mortgage. The key is being able to fix up the house within the allotted time so nothing comes up on the appraisal.

So after our original lender ended in disaster, we immediately switched to the new lender, and were able to close on the house with a week to spare. As soon as we got the keys, we went to the house with Orsi’s dad, and all he could say was how overwhelming the amount of work was. And so it begins.