Thread: Lenders (banks) want inspection reports

Changes coming that affect home inspectors?

I am hearing some rumblings that mortgage lenders and banks more frequently are now requiring their buyer to provide them with home inspection reports.
(see prior thread "Mortage Companies and our reports")

Is there a trend developing here? The other day a buyer's realtor told me to NOT send the inspection report to her; she did not want to see it unless they had to negotiate some aspect of the contract (i.e. Radon or serious defect). She had heard at a national NAR convention that more lenders are requiring copies of the reports and will go so far at to subpoena them in court. Seeing the inspection report carries liability even for the buyer's agent.

Another realtor (relative) says that banks and mortgage industry are pressing for new legislation to control how sellers and buyers re-negotiate to settling inspection contingencies (i.e. the seller writes a check at closing to the buyer to pay for repairs), or otherwise not letting the lender know about deficiencies disclosed in the property inspection report that might otherwise affect the value of the house (items that would not show up in the appraisal). The bank loans on the value of the house, and some of that money is being used to pay the buyer to have repairs done, or essentially accept the house with the deficiency. Or for example, the seller agrees to pay for radon mitigation, but the buyer instead uses the money financed by the bank to buy a new TV. Some of that makes sense, since withholding info about the material value of a property from the lender could constitute fraud [I can't imagine anyone not disclosing the whole truth in real estate transaction].

A realtor told me that a buyer using a Rural Development loan was required to get a home inspection and the report to be sent to the lender; because my state (Montana) has no licensing laws for inspectors, they required an ASHI member (couldn't be InterNachi or someone else). Not sure I like the lender trying to limit who the buyer can select as the home inspector.

Besides the Realtors trying to control the home inspection process and industry, are the banks and lenders now also sticking their fingers into our profession? In any case, it makes a joke out of the confidentiality clause in my agreement and report.

I also see that there are some recent laws in New Jersey and Rhode Island that are hard limits on the inspection contingency to 10 days after signed contract; looks like they are trying to limit the inspection report in some subtle ways beyond time limits. Anyone else seeing anything similar?

I don't see why you feel the banks are poking their fingers in our business; they are poking their fingers in their own business. It all makes sense to me and I believe EVERY lender and EVERY insurance company, and anyone else that has a financial interest should require an inspection.

As far as confidentially, how does that effect you, me, or any other inspector? Much of my work is at the request of insurance companies. They require their client, who in turn calls me, to have an inspection. I am not the one to send the report to them. I am hired by MY client, who in turn forwards the report to whomever they please.

Not too long ago I was referred to a client by an underwriter. The underwriter called and asked for a copy of the report. I respectfully explained to her that I understood that she had asked the client to have an inspection, but she would have to contact the client to request a copy, as I was not authorized to send copies to anyone other than my client.

Finally, "the agent instructed you not to send her a report"? Do you normally send reports to agents? I never do, actually although I am courtious to everyone, I am not at all connected to anyone other than my client. If my client wishes to or wishes not to forward a copy of my report to the agent, seller, or anyone else; it is their option.

The issue that may be at the root of lender interest is that of how money is being handle at settlement. More specifically if the buyer is using the seller's money to qualify for the loan. The lender has restrictions on where and how money is generated toward the loan and the purchase of the property. With the increasing use of written inspection reports as a negation tool, rather than an informative tool on the property, the lenders are concerned how cash is being shuffled at settlement.

In essence the contract of sale is part of the loan papers. All that is in the contract is a concern of the lender, especially after the recent history the real estate meltdown and the resulting fall out. So why would the lender not be interested in knowing repentant information about a the asset held. It use to be just about appraised value and ability to pay. Ahhhh the good old days...

It's a brave new world coming...

Inspections with USDA Rural Developement backed loans are very common and Yes they want to see the report. USDA also requires anything in the report to be corrected prior to the loan being approved, so many times the buyers are left out in the cold because the owners will not make the repairs or the home is a repo.

The bank/USDA are protecting the buyer and the lenders assets.

As for them requiring a particular home inspector organization membership, I don't think this is right but it is the result of the work that ASHI is doing in Washington DC with their full time lobbyist. ASHI is the reason that whenever a person buys a home with any financing the buyer must sign a form at the first meeting with the lender telling them to get a home inspection on anything they buy.

I do see banks pushing more inspections and I think it is a well needed and overdue change.

Agents not wanting to see a report is just stupid. Ignorance is not bliss! Some national CE trainers are going around telling RE agents to do this because it will lessen their liability. It is just more reduce your liability crap and the heck with the consumer!

Agents do not control me, I receive at the most only 15-20% of my business directly from agents. They need me more than I need them!

I am not referring to FHA/VA/HUD or RD type loans. I think we're see fewer of those as the commercial banking industry is getting more back into the lending market.

I don't disagree with lenders working to protect their own interest. Banks have shown immense stupidity in the past, and there is obviously some near fraudulent behavior when a seller cuts a check at closing to pay the seller for repairs, mold or radon mitigation, when the lender has not been made aware of those property conditions. Or, they drop the selling price below appraised value as compensation for some condition in the home. After all, the bank usually owns at least 80% of the house at that point. There is no guarantee that the new owner will necessarily use that check from the seller to perform the repairs or mitigation work, or that it will be done professionally or competently.

My question was, has anyone in other parts of the country heard of impending local legislation on the horizon from bank / mortgage lobbies that would impact the historic inspector / client relationship?

As far as realtors referring clients to inspectors, I don't know how it works in your regions, but here (small city, rural area) the realtors have a huge influence on who the buyer selects as a home inspector. Local policy is to hand out 3 inspector names or business cards, but believe me, usually one of those cards is pushed pretty hard to to top of the stack. I almost NEVER get a call from a new client that found me in the phone book or from my website. So if you aren't in favor, you don't get a lot of business. Luckily, I have been around a long time and do have a fair amount of return, word-of-mouth referral business, and loyal realtors that appreciate my thoroughness. And here, the expectation is pretty much the the buyer's realtor gets a copy of the report.

Is this my imagination or are inspectors starting to accept that some third parties have a legitimate need to see our reports? In the past inspectors would bitch and moan about anyone other than the client relying in H.I. reports.

Originally Posted by Eric Barker

Is this my imagination or are inspectors starting to accept that some third parties have a legitimate need to see our reports? In the past inspectors would bitch and moan about anyone other than the client relying in H.I. reports.

Eric,

This brings some credibility back into the Real Estate transaction. After the last Appraiser, Loan Initiator, Realtor, Lender and Financial Swindles the buyer was left holding the bag.

Home Inspectors typically work for the buyer, they say where the report goes. If the lender will not lend without the report the buyer has little recourse other than to share it.

They paid it belongs to them.

Who else should the lender trust for an honest opinion on the property?

Here in California, home inspection reports are part of the transfer disclosure process (TDS), specifically courtesy of the Leko Decision of January 31, 2001, which declared that they are not confidential documents, despite contract claims to the contrary, and can be used and relied on by third parties years into the future.

Having known that since the day I opened for business on October 15, 2001, I have always had a little paragraph in my service contract that is initialed by my Clients that gives me specific approval to send the report to my Client's agent, the seller, the seller's agent, and/or anyone else who has an interest in the information in order to provide services to my Client.

I have always been proud of my inspections and resulting reports and have absolutely no problem with the general public seeing them. When a non-Client calls wanting information while holding an old copy of my report in his hands, I've always been able to turn that non-Client into a new Client with a new home inspection.

One piece of information that most new buyers miss is work done without permits or permitted work that was never inspected. I recommend checking with your local Building department and zoning departments for a permit history of the property. This may tell you more than you want to know. I would also check the property appraisers office for square footage or room discrepencies. I don't know if a home inspector can add this to his report or not.

I have seen new buyer's get burned with having to tear down that detached building because it was never legally permitted and violated the zoning laws or flood zone laws.

It might be built right, but was not allowed to be built in the first place.

Had an "Underwriter" press to have the "Air Gap" repaired/replaced - Seller refused to do something so minor after getting soaked for a new roof and rot issues I had found. The kids I was inspecting for didn't get the place cause the Seller got pissed and took his home off the market. Even with FHA/VA loans, Realtors have to give Buyers the handout that says "For Your Protection, Get a Home Inspection" - it's a suggestion, not a requirement. The only time a lender is entitled to anything but a pest report is when a "Flipper" purchases a place, rehabilitates it, and is asking for more than a 20% increase above what he initially paid for it within the previous 90 days ! - That's It ! Lenders Lend / Inspectors Inspect. Most items we find during an inspection are monetarily minor and can be dealt with after closing. JMO

Originally Posted by Jim Hintz

Had an "Underwriter" press to have the "Air Gap" repaired/replaced - Seller refused to do something so minor after getting soaked for a new roof and rot issues I had found. The kids I was inspecting for didn't get the place cause the Seller got pissed and took his home off the market. Even with FHA/VA loans, Realtors have to give Buyers the handout that says "For Your Protection, Get a Home Inspection" - it's a suggestion, not a requirement. The only time a lender is entitled to anything but a pest report is when a "Flipper" purchases a place, rehabilitates it, and is asking for more than a 20% increase above what he initially paid for it within the previous 90 days ! - That's It ! Lenders Lend / Inspectors Inspect. Most items find during an inspection are monetarily minor and can be dealt with after closing. JMO

I always found it shocking that a bank was lending someone money or should I say lending them someone elses money and did not insist on a home inspection....to protect the someone elses money. There was way to much reckless lending from banks in the past and should do 2 things (within reason and who knows exactly what within reason should be), Protect the buyer to make sure he can afford it (but be real and not go over board) and protect the money going to the home in question so the bank does not lose someone elses money.

Everyone needs to get a home inspection that is borrowing someone elses money to buy it.

Now as far as builders asking me to sign a contract with them to be one hundred percent liable for anyone, including the builder getting injured during the inspection, and demanding I give them a copy of the report in 24 hours and stating I may not open electric panels and walk on roofs......so my client can hire me to help protect them from the builder. Also that contract stated I may never divulge my findings to anyone or any entity, ever, or be held legally liable. That makes it to include my clients lawyer if needed or court or anybody anywhere. My clients cannot divulge anything about the report either.

If that is not the sorriest illegal crap I ever heard. I tell my clients that regretfully I cannot protect them doing an inspection like this and I will not be liable for anyone at an inspection but me.

They will have to either talk the builder into the fact I am going to be there for them and not the builder and I cannot do a complete inspection under these restraints and I will only be liable for myself and my own actions or they will regretfully have to hire another home inspector.

Did an inspection on early 1900s house that had some 60s-70 ad ons, awhile back. It was a B.A.C (bulldoze after closing). I was obvious it was a repo. My suspicion is they borrowed the money to replace the severely rotted roof, install the new HVAC system and make an attempt to upgrading the electrical, then couldn't make the payments and lost it. The problem was all the new work done on this already, turd of a house, was done by what appeared to be a bunch of chimpanzees with crowbars. To say it was bad just doesn't cover it. If the bank knew what this house was like. Then WHY DID THEY LEND MONEY ON IT???!!! The answer can only be, they must NOT have. Then, you got to ask WHY!!! It is likely they based the loan decision off of a padded appraisal with no idea of the physical condition of the house. IMHO The house is now unmarketable. This was confirmed later by my client. She told me that the Realtor was livid after reading the report and removed the listing.

I feel it is about time the lenders see the light. Smart decisions now will make for a stable financial future. We all see how the old plan worked out for us.

Originally Posted by Terry Beck

Changes coming that affect home inspectors?

A realtor told me that a buyer using a Rural Development loan was required to get a home inspection and the report to be sent to the lender; because my state (Montana) has no licensing laws for inspectors, they required an ASHI member (couldn't be InterNachi or someone else). Not sure I like the lender trying to limit who the buyer can select as the home inspector.

I contacted the USDA office regarding this quote above. As you might expect I got the run around. I was told that the inspector had to be "Certified" I asked how does one get "certified" to do USDA compliant inspections and I was told "The USDA guidelines say the inspector must be certified" No actual answer just a re-pete over and over. So either they don't know or there not telling

On a different but similar note. A friend of mine who is in the market to buy, told me that when he told his lender (non USDA) during his pre-qual. that he wanted me to do the inspection he was told, that is not possible. He would be required to use the banks inspector. Apparently the lenders aren't trying to limit buyers choices they ARE DOING IT. So if your not on one of the "Secret Lists" your business is circling the drain. It does seem that the Home inspector is being squeezed out. No body wants the truth.

Originally Posted by Bob R

I contacted the USDA office regarding this quote above. As you might expect I got the run around. I was told that the inspector had to be "Certified" I asked how does one get "certified" to do USDA compliant inspections and I was told "The USDA guidelines say the inspector must be certified" No actual answer just a re-pete over and over. So either they don't know or there not telling

On a different but similar note. A friend of mine who is in the market to buy, told me that when he told his lender (non USDA) during his pre-qual. that he wanted me to do the inspection he was told, that is not possible. He would be required to use the banks inspector. Apparently the lenders aren't trying to limit buyers choices they ARE DOING IT. So if your not on one of the "Secret Lists" your business is circling the drain. It does seem that the Home inspector is being squeezed out. No body wants the truth.

My initial reaction is that your friend or the mortgage officer didn't understand what was being said or asked. I think someone confused appraiser with inspector. Most banks don't even want to see an inspection report, much less be responsible for it.