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No-Go on Escrow Holdbacks

We recently had a deal on a cute condo with a loft area. The issue was there was no railing on the area of the loft adjacent to the stairwell, so the appraiser called it out as a health and safety hazard (someone could literally fall down the stairs). The underwriter of course called for a small railing to be installed prior to funding.

The seller wanted to get the property off his hands as quickly as possible and did not care to have any work done on the property. Our buyer was selected over multiple cash offers, which would not have required the work to be done.

In this instance, an escrow holdback would have been a perfect solution. The buyer could have obtained a bid for the work and posted the money in escrow at closing. Unfortunately, escrow holdbacks for repairs (even in such a common-sense situation as this) are still not allowed by many lenders. They are unwilling to take the risk that the work is not done, or not done properly, in which case they have unwarrantable collateral.

The only escrow holdback we can do is for sewer lateral repairs. The deposit of $4,500 (typically—the amount can vary) is posted in escrow according to the terms of the contract, and the deposit is sent to EBMUD or another government entity responsible for the sewer lateral compliance. That entity will then release the balance of the funds to the party who made the deposit (either the buyer or the seller) once the property is in compliance.

In the scenario above, a tactful agent was able to negotiate and arrange the work to be done with the seller, and we still ended up closing on time with all parties satisfied.

Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646