Will Lenders Allow Repair Allowances on the Closing Disclosure

Since the  implementation of the new integrated disclosures commonly referred to as TRID (TILA-RESPA) , the Loan Estimate Disclosure Form and the Closing Disclosure Form are now the documents that are associated with closings and home sales.

Will lenders allow repair allowances on the Closing Disclosure?  This is a question that arises when Buyer has completed an inspection and Buyer and Seller have negotiated repairs and/or allowance for repairs that were discovered in Buyers Home Inspection.

One of the responses a Seller has on the Property Inspection Response Form is “unless disallowed by the lender, in lieu of Seller’s having items on the list of deficiencies corrected prior to the act of sale, Sellers will pay to Purchaser at the act of sale, the sum of $__________ to correct such deficiencies.  Both parties accept the sum as full and complete payment for the correct of such deficiencies even if the actual cost to correct the deficiencies is different from the stated sum.”

The Inspection Response Form is a separate document between Buyer/Seller that is not attached to the Purchase Agreement.  If and when repair allowances are negotiated the question arises as to how the credit to the Buyer is going to be given.  Most lenders frown on repairs being listed on the Closing Disclosure or reference to any repairs in the Purchase Contract.  Should the Seller want the Title Company to hold any allowance in Escrow the Closing Attorney must still show the amount on the Closing Disclosure and any invoices associated with repair that is paid from the escrow amount.

I just ran into this situation again recently with an exterior repair on a home.  The seller had obtained a bid and was agreeable to make the repair.  However, the company was so busy they were unable to schedule the repair in time for closing.  Thankfully, the bank allowed the escrow to be shown on the closing documents.  The seller submitted the bid invoice and that amount was with-held from the seller proceeds at closing.

It is always best to check with the lender and the title company to see if any escrow will be allowed.

 

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