UPDATE:  Thank you for all of your responses!  I am representing the seller.  The buyers agreed to make the repairs before settlement to meet the FHA guidelines.  We had disclosed that there was a mold-like substance noted, but not tested.  The previous buyers home inspector pointed out what appeared to be mold, but was never tested.  The buyer backed out and came back with a lower offer and a repair estimate.  We submitted the repair estimate and convinced the short sale bank (NationStar) to accept $20,000 less for the property.  That same buyer backed out at the last minute due to personal problems that prohibited them from qualifying.  I felt obligated to mention the mold-like substance in the listing when I put it back on the market, although it had never been tested and confirmed to be mold.  We are one week away from going to closing with the new buyers.  The FHA appraiser is requiring a mold test and certificate based on what I noted in the listing.  He did not take any pictures of the mold-like substance, which leads me to believe that he didn't notice it in the house, but picked up on it in the listing after the appraisal.  The buyers are in the process of painting and installing a rail to meet the remaining requirements.  The buyers' agent is working on having the mold test removed as a requirement, because it is not pictured in the appraiser's report and it was never confirmed to be mold.  Tara Semtner referenced a case that she had below.  She was able to get her clients out of getting a mold test after she pulled the FHA guidelines and cited the applicable sections.  Thank you Tara Semtner for this information. 

Can anyone think of a way to get around this?  The appraiser noted the following FHA required repairs.  The short sale bank will not make or fund any repairs, because the price is based on the condition of the property.  The sellers cannot contribute.  These repairs would require time and a large sum of money from the buyer before settlement.  We are scheduled to settle on 6/17.  We have to settle before the end of the month, because the property is at risk of going to foreclosure.  Can money be set aside in escrow?  Has anyone ever dealt with a work around, so we can settle by 6/17?  If so, please let me know.       

FHA REQUIRED REPAIRS
*The Subject has peeling paint on the Eaves of the left side of the home and on a number of windows on the rear. These will need to be scraped and repainted. Basement Bathroom is currently unpainted and needs to be painted.
*The subject needs a railing installed on the 1st floor in the living room over the stairs in the split foyer.
*The subject has flooring missing between the BR or RR into the Bathrooms. This creates a tripping hazard and an uneven flooring area which will need to be remedied.
*The subject has what appear to have been water damage in the Basement Bedroom and possibly other areas as well. There is evidence of repair work but the listing suggests this may have resulted in "Mold Like" substances and it was not tested. This will need to be tested and if found to be mold, it will need to be removed and repaired. The appraiser is not an expert in this area and if mold is present then; a specialist will need to remove and repair and send the appraiser a letter or certify that it has been done. If it is not present then the results of the test saying that mold is not present.

Thank you!

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It all depends on how the deal was negotiated. The contract has the answer. If the seller can't make the repairs and the buyer is not willing to pay to have them done then cancel the deal and look for a cash buyer.

The repairs look very minor.

We don't accept FHA buyers unless the property is in pristine condition.

OR....the buyer can see about doing FHA 203k. I have used this on short sales and it works great.

 

I have seller with $2500 in Termite and moisture repairs which were  unexpected.  The buyers are VA.  Loan officer said they are not allowed to pay for anything.  Is that true?  Maybe I should try to get them to do 203K, but would they need to put money down?  Sellers have no income.

Correct, VA does not allow buyer to pay for repairs.

That is why it is best to pre-qualify the terms before excepting an offer. If the home is in need of repairs a VA or FHA loan is not going to work unless the FHA loan is a 203K. I usually set down with my seller before I list the property and go over the different types of offers that we may receive. This way they are educated and understand the consequences of choosing the wrong type of buyer;especially with a short sale. 

Ask underwriting if they will allow a hold back amount for repairs.
All appear minor. Even the mold like part has a high probability of not being mold.
Your buyers could do most of the work themselves.
I always have my inspector go through my less than stellar short sales whether listings or for my buyers before contract to give me a break down of FHA red flag issues. That way buyers and sellers are fully aware of the repair costs. Write it in to the contract with a repair addendum as to how they will be remedied and by whom.
Depending on the lender the buyer may be able to set up an escrow for the repair amount. Professional bids are needed for the determination of price but buyer does not have to use the company that gives the bid. I have had this done before but my buyer had to put 1 and a 1/2 of the amount into escrow and the funds were not released by her lender until after the repairs were completed (after closing) of which appraiser had to go out again to make sure those items were repaired. 203k is the cheapest way to go.

If the buyer is  a VA loan buyer, can funds be put in escrow to have work done after closing?

Since you did not mention a home inspection I am assuming one was not done. The painting part is an easy fix. the rail part is an easy fix. I guess your clients need to change the type of financing and flip it over to a 203K . The sellers can always file a chapter 13 to stop the foreclosure sale until these issues can be resolved.  Not the cheapest way to go, but it is an option.    

I am representing the sellers.  The buyers waived the home inspection.  The buyers have started to make the repairs.  They are trying to work around the mold test requirement (see my update above).  Thank you for the tip on chapter 13. 

I know this won't help for your current sale, I do feel your pain, we went down the same road only once and learned our lesson.  

Going forward... We use a clause in our MLS for all short sales:  "Buyers with conventional loans or CASH only.  As-Is condition may not meet FHA financing requirements.  FHA Buyers will only be considered if they agree to do their inspections up front before the short sale is submitted."  This has worked very well for us and we do not have any more FHA fire drills while we are trying to close.   Yes, it puts the buyers inspection money at risk, but there is greater risk of harm to the seller, so we usually gain agreement.

We actually work to move all our buyers to do their inspections up front; more and more are doing this as it gives all parties involved much more time for more desirable solutions, and often gives the sellers time to complete DIY (Do It Yourself) repairs.  I recommend looking into charitable organizations in your area that may be helping low income families and families facing financial hardship with repairs.  One of our towns has a building supplies co-op where such families get free materials for home repairs.  Also utilize FreeCycle.com for free repair materials.  We've gotten lucky there a number of times... also with free landscape plants too!  Find out about these organizations before you need them so that they are in your bags of tricks and ready to go!

Thank you Alyce!  I think that is a great idea to have the inspections completed up front.  I am going to encourage that on future short sales.  I have a FreeCycle.com account.  I never thought about getting repair materials on there.  Thanks again! 

UPDATE:  Thank you for all of your responses!  I am representing the seller.  The buyers agreed to make the repairs before settlement to meet the FHA guidelines.  We had disclosed that there was a mold-like substance noted, but not tested.  The previous buyers home inspector pointed out what appeared to be mold, but was never tested.  The buyer backed out and came back with a lower offer and a repair estimate.  We submitted the repair estimate and convinced the short sale bank (NationStar) to accept $20,000 less for the property.  That same buyer backed out at the last minute due to personal problems that prohibited them from qualifying.  I felt obligated to mention the mold-like substance in the listing when I put it back on the market, although it had never been tested and confirmed to be mold.  We are one week away from going to closing with the new buyers.  The FHA appraiser is requiring a mold test and certificate based on what I noted in the listing.  He did not take any pictures of the mold-like substance, which leads me to believe that he didn't notice it in the house, but picked up on it in the listing after the appraisal.  The buyers are in the process of painting and installing a rail to meet the remaining requirements.  The buyers' agent is working on having the mold test removed as a requirement, because it is not pictured in the appraiser's report and it was never confirmed to be mold.  Tara Semtner referenced a case that she had below.  She was able to get her clients out of getting a mold test after she pulled the FHA guidelines and cited the applicable sections.  Thank you Tara Semtner for this information. 

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