Beware of Code Violations When Buying a Repo

Westcoe Realtors, Riverside California…Of all the paperwork that gets shoved in your face when you purchase a home, one of the most important (and generally most boring) is the preliminary title report.  And yet, no document is more important than this one, for it will make sure you understand exactly what comes with the property after it is transferred from the old owner to you.  In essence, what warts will transfer with this sale?

In most cases, the title prelim lists every recorded document that goes with the property.  Generally, this includes any existing loans the seller has against the home, the current property tax status (with any back taxes owed the responsibility of the current seller), any easements that may affect the property (ie: does anyone have the right to cross your property for a specific reason), any legal judgements recorded against the current seller (with most of these needing to be taken care of from the sellers funds at close), etc.  These are the basic items found in a preliminary title report.  There can be more of course, but these are the basics.

However, there is a new item popping up on many bank owned properties, and unfortunately, in many cases, neither the bank nor either agent knows about it until well into the escrow period…and this new “recorded little nasty” is a code violation from the city in which the property is located.

Here is how it works.

From a political and visual standpoint, most cities are tired of the general deterioration of bank repos.  You know the story…dead yards, broken windows, stolen appliances etc.  Neighbors complain on deaf bank ears, cities get blown-off as well, and the only remedy for these angry residents and local politicians is code enforcement violations.

Generally in a code enforcement violation, once a property has been reported to the city/county code enforcement section, then the code enforcement officer can enter the property and cite away.  The citations can cover a multitude of issues…landscape violations, trash accrual, building violations, etc.  The end result is a list of items that must be fixed, and this list of items is noted and recorded against the property.

Unfortunately, the communication between the code compliance department and the bank that owns the property is poor…mostly due to the bank.  So while this new code violation is recorded against the property, no one knows about it until it shows up on a title prelim during the escrow period…many times only days before the close of escrow.  Now what?

Well, the first thing that has to happen is for either the buyer or seller to accept responsibility for the items listed.  It should be the sellers (the bank) responsibility, but that does not mean they will accept it.  The chain of command in dealing with the selling of a bank repo is cumbersome at best, and throwing a new (and potentially large) cost at the bank near the end of a transaction can wreak havoc.  Many times the bank will simply refuse to pay the costs of the repairs required.  Disregard the fact that if this escrow falls out they will now know about the code violations and will have to disclose same to the new buyer they will need to find…the reality is that banks generally don’t operate with any amount of common sense.

So…if the bank won’t accept the responsibility for fixing or paying for these code violations, that leaves the buyer.  At this point, is the purchase price is a good enough “deal” that fixing the violations still makes economic sense for the buyer, then full speed ahead.  However, in most cases, the buyer didn’t plan on this little surprise either, and they cannot (or will not) accept responsibility, and the sale falls out.

In the end, as in almost any escrow, when there are surprises, everything gets re-negotiated between the two parties, and hopefully, some common sense prevails…because unexpected surprises are no fun for anyone.  However, as we all know, common sense is not so common…so if you find yourself dealing with one of these code violation issues, we hope your end is a successful one.

In the meantime, be sure to read your title prelim very carefully so you know exactly what you are buying.