Letters of IntentClosing escrow with HOAs is often a longer and more complicated process than that of a single-family home. See closing escrow in HOAs

There is one simple thing you can do to speed up the process and avoid hang-ups during escrow of a condo or townhome.

Let’s say you represent the seller of a townhouse in an HOA. The buyer requests a termite inspection during escrow.

Closing escrow in HOAs is an often longer and more complicated process than those of a single-family home. See closing escrow in HOAs. Letter of intent

There is one simple thing you can do to speed up the process and avoid hang-ups during escrow of a condo or townhome.

To illustrate the point, let’s use an example.

Let’s say you represent the seller of a townhouse in an HOA. The buyer requests a termite inspection during escrow.

During the inspection, the termite inspector finds one or two spots that need termite treatment and wood that has been damaged by termites.

It is typical that the HOA would approve termite treatments by way of local application. Wood repairs, however, are typically not approved right away because they are more costly and complicated to schedule.

In this example, we will assume that local termite treatments are approved right away, but repairs of termite damage are not approved by the board of directors immediately.

The buyer’s lender demands all items in the termite report be addressed and cleared before funding the loan.

The HOA’s board of directors is either unable to approve due to budgeting constraints or unwilling to schedule these repairs outside of their normal progression of wood repairs.

What do you do?

A savvy real estate professional would know to request a letter of intent from the board of directors.

Most, if not all, boards of directors would tell you that they intend on performing all necessary structural repairs to their HOA though they may be unable to meet the timeline of your particular escrow.

It’s doubtful that the board is apathetic towards structural damage in their HOA and that they are willfully neglecting to perform necessary repairs.

Reasons for not immediately approving repairs in an HOA are usually due to complicated budgeting, scheduling, and disclosure requirements that are not easily met in a short amount of time.

A letter of intent is an official document from the HOA stating that they do intend on performing the repairs as indicated in the termite inspection report.

In many cases, a lender will accept an official letter from the board of directors detailing their plan to perform the necessary repairs as indicated in the termite inspection report filed in escrow.

To improve chances that lenders will accept the letter of intent to satisfy their condition, be sure that the HOA letter provides as many details as possible.

At the very least, the letter of intent should include the following:

  • Full Address of Unit in Escrow
  • Termite Report Number Specific to the Escrow in Question
  • Individual Items that have been approved and completed
  • Individual Items that are planned for completion soon.

In our example a basic letter of intent would read like this:

“To Whom It May Concern:

We are in receipt of termite inspection report number 234567 from Accurate Termite and Pest Control performed on June 15, 2018, at the unit currently in escrow located on 345 For Sale Drive #23, City 90001. At this time, items 2B and 2C have been approved for completion as recommended and specified by the said report. These items are scheduled for completion with the same company who performed the inspection.

Though we are unable to approve and schedule repairs of damage as indicated in item 2A in time to meet the current escrow timeline, these repairs will be addressed as specified by the report mentioned above as part of the community’s regular maintenance.”

A basic letter of intent, like the example above, is sometimes enough to prove to lenders that the seller is doing everything possible to meet all their conditions.

The board’s intention to address the issues in the unit in question, and to continue with regular maintenance for the entire community, is often enough to satisfy lenders’ desire to protect themselves from loaning on a risky property.

In some cases, such as in FHA loans and VA loans, a lender will want more specificity in the letter of intent.

A letter of intent is stronger if it specifies dates, timelines, and other details relating to the maintenance and care of the HOA. Consider having additional information such as:

  • Dates or Timeframe Repairs Expected to Happen
  • Outline of Ongoing Maintenance Occurring Regularly at the Community
  • General Mention of General Maintenance Contracts in Place

For Example:

“To Whom It May Concern:

We are in receipt of termite inspection report number 234567 from Accurate Termite and Pest Control performed on June 15, 2018, at the unit currently in escrow located on 345 For Sale Drive #23, City 90001. At this time, items 2B and 2C for termite treatment have been approved for completion as recommended and specified by said report. These items are scheduled for completion on June 20, 2018, with Accurate Termite and Pest Control.

Though we are unable to approve and schedule repairs of damage as indicated in item 2A in time to meet the current escrow timeline, these repairs will be addressed as specified by the report mentioned above in August as part of the community’s regular maintenance. Each year the community undergoes regular inspections, treatments, and repairs as part of the routine and preventative maintenance. This year we have contracted Accurate Termite and Pest Control to perform these services community-wide. We expect that this item and any others recommended by our termite control provider will be addressed between August and September of this year.

Specificity helps the underwriter understand that the reason behind the delay of repairs is not neglect or deference, but a timeline issue. Specifics about the community’s regular maintenance and repairs plan helps lenders know they are lending against a community with active and responsible maintenance protocols in place.

With all that said, remember each lender and each underwriter reserves the right to accept or reject anything they want to satisfy their conditions.

We have heard of some lenders requiring as much specificity as requesting to see copies of signed maintenance contracts with termite control companies to verify that repairs will indeed be addressed promptly.

The very stringent will accept nothing less than a notice of completion and certification from the company that noted the necessary repairs.

Remember that requesting a vendor to produce notices of completion and certifications for work that has not been completed is not just unethical, but also constitutes fraud.

Anytime you open escrow in an HOA community, acquaint yourself with the community’s maintenance protocol and approval process.

Make contact with the community’s managing agents and board members if possible.

Most importantly, be prepared to request a letter of intent. A little bit of preparation for repair-related hang-ups will save you days, if not weeks, of time lost in escrow.

We continue to be Southern California’s preferred termite and pest control service provider. We pride ourselves in being the number one provider of dependable and convenient termite inspection and services for escrow.

Schedule a termite inspection with one of our local termite inspectors at www.termitepro.us or Contact us at 1(844)GOT.ANTS.

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