Crediting a Buyer for Repairs
In the past, it was common practice to simply provide an allowance or credit the Buyer for repairs that need to be made if the Seller didn’t have the time or funds to take care of necessary repairs before the closing date. For example, a costly roof that needs to be installed during the winter months or the Seller just doesn’t have the funds before closing to install a roof.
Unfortunately, lenders no longer allow these types of credits without approval. The reason why is in the past too many Buyers were receiving a credit at closing to do the repairs later and they were never completed. Instead, they just pocketed the money. Lenders frown on this because if they retain the property through foreclosure, they would be the ones absorbing the cost to perform repairs the Buyer was given credit for when the home was purchased.
Typically, any kind of credit to the Buyer from the Seller for any amount has to be approved by the lender. Lenders do not want to see any credits to the Buyer on a final settlement sheet.
So, what’s the solution if repairs need to be done after the closing? The best way to handle this situation is to instruct the title company to issue a check directly to the contractor who is going to make the repair. The title company will need an Amendment signed by the Buyer and Seller directing the title company to issue the check and the Seller will need to provide an invoice from the contractor. If handled this way, the Lender will usually approve the final settlement sheet.