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Fixing Up A Foreclosure
A Snag in the Buying Process
Published on March 13, 2012 by guest author: Adam Rust

Adam Rust is purchasing a foreclosed house and fixing it up for renters. This blog post is part of a series about that process.

I had a report due - something that I had been working on for way too long - when my realtor called me. “Have you been over to the house?” she said. “Or has Reneta called you?”

“No,” I said. “But what’s up? Should she have called me?”

“You didn’t hear about the water coming out of the ceiling? And there’s supposed to be a big crack?”

"I think I’ll go over there now."

"Well, good, because Reneta is there and she wanted you to see it. Just so you’d know what is going on."

*  *  *

The house is about six miles from my office. While it isn’t that far away, getting there involves going through an area that has yet to be developed. It feels rural. You have to drive over a railroad track, which wouldn’t seem like a disruption except that the state has never graded the road. You have to go over a berm. There is a great barbecue place on the right. At a certain point, the country goes away and the suburbs roar back to sleep. My new house is in the middle of that new suburb. They have managed to build thousands of houses on this side of town in the last 15 years. They’ve managed to do that without constructing any apartment buildings and very little in the way of retail. There is a big road to the south where there are a few grocery stores and car dealerships, but there is still a big gap between commerce and cul-de-sac.


Reneta is standing outside with a friend. I think she was about to leave. Her keys are in her hand and she is standing next to her hybrid Lexus.

“I’m glad you are here,” she says. “I was just going around and checking things out. I try to get to about seven houses every day. " Reneta is a champion realtor. I saw her in the paper the other day. She was listed in the Platinum Circle.

We go into the house. I am hoping that this is just another incident for the bad water heater set in the ceiling above the family room. The disclosures said that it was broken and when I the water turned on for the inspection, it immediately began to leak. Suddenly I understood how the stains on the hardwood floors came to be. I was thrilled. Certainty is all I want. But this problem is not in that room, but instead above one of the smaller bedrooms. The carpet is soaked. I can smell mildew. It is ruined. The ceiling is bowed. There are brown stains and water is dropping through from the attic.

“Did you know about this?,” Reneta asks. “I just wanted to know so that you wouldn’t be surprised after you buy the house.”

I can tell that she wants to make sure that this won’t scotch the sale.

“You can drop out, you know. But you are an investor, so you’ll lose your earnest money. No room. That’s just how it is. And, they’ll probably go after you for turning the water on.”

Indeed, I did turn the water on. When a home is in foreclosure, the seller generally turns off all of the utilities. They drain water from the pipes and then add antifreeze. They even wrap electrical tape around the toilet lids. That’s very safe but it doesn’t make a lender very happy. The bank wants to make sure that they are lending money on a habitable home. They want to make sure that the furnace runs, that the water pressure will hold, and that the various electrical systems will work. They have to know that you can draw power. If you cannot, then they might turn down the loan or make you put up a big escrow against the home. It is a classic catch-22 and it is probably one of the reasons why foreclosures sit vacant for so long.

Last fall I put a bid on a home that was not accepted. I kept watching the home. In November, the home went under contract. It sat like that for months. I called the realtor, suspecting that there was a problem. “No problem, he said. "It's just that the lender wanted to have repairs made as a contingency for the sale.” The deal fell through. This month it will have been vacant for almost two years.

Once I get up in to the attic, I can see the problem. There is a spigot at the bottom of the water heater. It has been dripping for some time. It has dripped enough that the water pan underneath it is full and spilling over on to the insulation underneath. Reneta was by on Monday, so it could have been like this for three days.

“I’m going to go out and get some tools. I will call my handyman.”

“You cannot touch anything,” says Reneta. “It is HUD’s home. If you try to repair anything, they will sue you. You probably are not in any trouble now, but you did turn on the water so you never know, but as long as you buy the house on Monday you probably are going to be ok.”

I don’t like that at all. I can’t fix anything but it looks like this thing is going to drip gallons of water until it is repaired.

Hold on. I am going to put a bucket under this. Let me find a bucket.

There is no bucket, but even better, there is a large trash can in the back yard. It probably will hold 60 or 70 gallons of water. The leak is coming from a 50 gallon water heater and it has clearly lost plenty of water already, so at least there will be no more dripping.

One way to look at this would be to say that someone just called me up this morning and told me that I was about to lose between $500 and $1,000.

It will not cost much to put up new drywall in the ceiling. I can get new carpet installed for $3 a square foot – “cash." If the water drips for too long, things get more complicated. The water could spread to the moulding and then soak into the walls. It could soak enough into the floor that it then starts to drip through the floor and into the living room below. There’s also the possibility that the water heater is ruined . I’m hoping that it is just a pipe. A new pipe is three dollars. But this is just the story of a foreclosure. If it was a nice thing, then more people would buy these homes and they would not be such a “deal.”

To be continued ...

Adam Rust lives is a father and husband who lives in Durham, N.C. He also blogs at www.Banktalk.org

Previous Posts By This Author: The Challenges of Dealing with Section 8, Part I and Part II

Becoming a Landlord

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