INSPECTIONS OF FORECLOSED HOMES

By Al Virtue

The reality in the home inspection business today is that many of the homes being sold and inspected are distressed properties. They are either bank owned or in danger of becoming bank owned. Inspecting distressed properties can be more challenging than the typical home inspection.

A home inspection should cover all of the major systems and components of a home. The inspection should include roofing, electrical, plumbing, heating, central air conditioning, foundation, interiors, fireplaces, framing, exterior, garage, etc. It is important to understand that an inspection is visual in nature and not intrusive. A detailed inspection and report should identify significant defects in the major systems or components of the home. The inspector should communicate to the buyer how the systems work and familiarize them with the home. Distressed property sales are different in many ways than
a normal home sale. The following are seven things you should know when buying distressed properties:

1. Disclosures: The lack of seller disclosure and seller information is a disadvantage when inspecting or buying a distressed home. A seller has a legal obligation to disclose all known defects of the home being sold. A seller is a great source for information concerning the condition of the home. For example, when doing an inspection, if I find stains under a bathroom, I can ask the seller about the stains. I will always test the stains for moisture both before and after operating all the bathroom fixtures. If the seller states the stains are old and from a previous leak that has been repaired, I would ask for documentation, but if the seller does not know about the stains, then I would assume the stains are from an active leak and in need of attention. When I find a system or component that has been modified or repaired, I would immediately request information and documentation from the seller. Most banks will claim not to know anything about the condition of the home. Unfortunately, most banks will not help with questions about the
   home.
2. Utilities: Many times the inspector, buyer and buyer’s agent will arrive at an appointed time and find that the utilities to the property have been shut off. The inspection can not be as complete without testing the gas appliances, electric systems and operating plumbing fixtures. We will have to re-schedule the inspection after the local utilities have been turned on. Sometimes the utilities are shut off, but the inspector can turn on the water, gas or electric. Turning on utilities can be a risky business. Many inspectors will refuse to turn on utilities because of the potential liability. What if the electric breaker you turn on sets the home on fire or when you turn on the water, the home is flooded? I recently turned on the water to a house only to find a broken pipe in the attic. I immediately turned the water off and fortunately the damage was minimal. I will turn on utilities if the bank’s representative gives me permission and I can not find a reason not to turn them on.
   
3. Vandalism and theft: It is not uncommon for the home to have been stripped of electric and plumbing fixtures, appliances and hardware. I have seen multimillion dollar homes where all the toilets and other fixtures were removed. When a home sits empty, it can become a target for criminal activity. Gangs move in. Vandals can maliciously damage the property. (I have only had this happen a few times, but it does happen.)
   
4. Vacant Home: Distressed homes stay empty for an extended period of time. It’s not unusual to inspect a home that has been vacant for over a year. A house that has been vacant for a long time can have more problems than an occupied home. Many times plumbing seals will leak, drains will be clogged, furnaces will not turn on, etc. When a home is being lived in, the systems respond better when tested. It’s like a car that has been sitting for a long time. It may not start without a boost. When inspecting a home that has been vacant for a long time, I try to operate the systems a little longer than normal.
   
5. Condition: Most times there is extensive deferred maintenance. The foreclosure process can take up to a year and sometimes longer. People do not properly maintain a home that is in foreclosure. There are also unfinished projects, bathrooms that have been partially remodeled, unfinished rooms and incomplete landscape, etc. A detailed inspection will find numerous problems.
   
6. “As Is” Sales: The property is sold “As Is”. Many times buyers feel, because they can not negotiate with the seller to remedy defects, that they do not need a thorough home inspection. A good inspection will give the buyer the information needed to determine whether they can handle the problems on their own. The inspection also may uncover defects that cause the buyers to back out of the transaction. ‘As Is” does not always mean the bank will not address certain issues. I have been told by clients that banks have lowered prices or replaced major appliances based on the inspection report.
   
7. Risk: When buying a distressed home, it is essential to know that you are accepting more risk. There definitely tends to be more problems with a distressed home sale and less information than with a normal home purchase. A thorough home inspection will reduce the risk because it will help you identify and prioritize the problems you will be encountering. Distressed home sales have created a great opportunity to purchase a home below market price. The key is to know what you are buying and to know your limitations. An inexperienced buyer should not be buying a fixer unless the buyer understands the challenges he or she will encounter. The house and the condition of the house need to match the buyer. A thorough inspection will give the information needed to make an informed decision.