As a mortgage broker, I’m concerned that home inspection reports are never included with a loan application. This risky pattern of mission came into focus last week when I hired a home inspector for a house I’m buying. My inspector found construction defects and safety violations in a home that is only 3 years old and appears in perfect condition. When I consider how casually and routinely my company and other lenders approve home purchase loans without any disclosure of property defects, I realize that the mortgage profession is essentially “driving blind,” handing out six-figure loans on properties we know very little about. What can be done to close this major liability gap? –Ralph
The lack of apparent concern for property defects is a transparent oversight of the mortgage loan business. In the same way, it is a shortcoming consistently practiced by the homeowners insurance industry. Mortgage loans and homeowners insurance policies are customarily written on residential properties, without any knowledge of or attention to conditions affecting foundations, site drainage, roofing, plumbing, heating, electrical violations, fire safety, and so on.
Lenders routinely secure purchase loans without knowing the general or specific conditions of the collateral that secures their money. Loans are based exclusively on market appraisals, without adjusting those evaluations for the costs of needed repairs. Likewise, insurance companies underwrite the fire safety of these properties without any disclosures of building violations that could increase the likelihood of a fire or other costly mishap.
Some insurance companies are beginning to show an interest in defect disclosure, but they are providing abbreviated report forms for home inspectors to fill out, rather than requesting copies of actual home inspection reports.
What can be done to close these liability gaps is a question that will be answered gradually, over a period of years, as the mortgage loan and homeowner insurance industries gradually recognize the benefits of accurate defect disclosure and its effect on their profitability. In the mean time, you as an individual broker can request copies of inspection reports that are generated during real estate purchase transactions. With refinance loans, however, home inspections will generally not be performed.
The home we just bought was built in the 1940s. We hired a home inspector, and he did a very thorough job. But after moving in, we found peeling paint where the walls had been concealed behind furniture. Could this paint contain lead, and if so, what is the safest way to remove it? –Renee
Lead paint is commonly found in homes built prior to 1978. If left alone, lead paint does not pose a significant health hazard. However, small children have been known to incur health problems by ingesting loose chips of lead paint or by teething on painted woodwork, such as windowsills. To determine whether the peeling paint in your home contains lead, consult a qualified environmental assessor under the Yellow Pages heading of “Lead Testing and Consulting.”
To write to Barry Stone, please visit him on the Web at www.housedetective.com.
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