Q: I just closed escrow on a home that was a bank-owned property. My sister was my Realtor — she doesn’t work with many buyers, but she agreed to help me and to give me her commission toward my closing costs. I didn’t have much money, but we just barely made it — I couldn’t even afford inspections. It was a very stressful transaction, as the lender really made us jump through lots of hoops that I didn’t think were normal things to have to do, and we closed escrow several weeks late.

The problem now is that we can’t use the bathroom, the tub or even the kitchen sink at my house — when they are supposed to be draining, they just overflow into the living room, so much that the carpets I just had cleaned are now all mildewed and water damaged. We’ve had it snaked a bunch of times under the home warranty, but now the plumber is saying the sewer lateral needs to be replaced. It’ll cost $5,000 and I have no money to do anything. For now, we’re using the bathroom at work, and driving over to my grandma’s house if we need to use it at night. I feel like we’re camping! What could we have done differently?

A: Let me count the ways, I mean, the things you could have done differently, my friend:

I’ve got no problem, generally speaking, with using a relative as your agent. In fact, it sounds like you might not have been able to buy a home at all without the help of your sister’s generous commission rebate. However, when you work with an agent who is inexperienced in buyer representation, you are setting yourself up for failure — or at least a very bumpy, late escrow, like the one you had. REO banks often charge a daily fee — up to a couple hundred bucks! — for late closings; you don’t mention whether you had such a charge, but it wouldn’t surprise me. Also, sewer lateral issues tend to be common in a particular area; if you’d had a local buyer’s broker, he or she might have known to insist that you obtain a sewer lateral inspection.

Secondly, if you couldn’t afford to have inspections, the reality is that you couldn’t afford to be a homeowner. Pest, property and roof inspections all together should run the average homebuyer somewhere under $800 — that $800 is an investment that stands to save you hundreds of thousands of dollars in surprise problems you find out about later, after closing — no exaggeration. Having inspections could have possibly prevented you from being on a prolonged, forced campout in your own living room. Also, making sure you understood what was and wasn’t covered by your home warranty would have helped you — and your buyer’s broker with knowledge of local homes’ common problems — figure out what your areas of exposure might be, and which inspections would have helped you manage that risk.

Third, to buy an REO (real estate owned by the bank) property without inspections is beyond foolhardy. Unlike an individual seller, the bank never lived in the home, and knows nothing about the history of problems or condition issues with the property. For this reason, they are often exempt from making meaningful disclosures about the property’s condition the way an individual seller would have to do. In a normal sale, the seller would probably disclose that they had a history of plumbing problems, so you would know to have a camera inspection of the sewer lateral during escrow. With an REO, though, it’s totally up to you to do your due diligence, and you, uh, didn’t.

It’s not unusual for REOs to be vacant for months or even years prior to the next owner moving in. During that time, an already problematic sewer issue can devolve into a major problem, as yours now is. My best advice is to apply for your first-time homebuyer’s credit money immediately, by filing an amended 2008 tax return. Use that money to replace your sewer lateral, and put any surplus aside for future repairs.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.


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