Repair Escrows

So how exactly does the repair escrow work? Well that’s a great question!  Let’s go thru this step by step.  We offer repair escrows with any loan program:  FHA, VA, RD, & Conventional. Repair escrows give the buyer the ability to have the work done after closing. Here’s how it works:

1. Appraisal is completed and the appraiser provides us with a list of required repairs.  Here is a sample of some things the appraiser might ask for.  The bottom line is that anything the appraiser feels is a health or safety issue will be on the list of repairs.  With that said there is no published list of required repair, its all up to the appraiser.
   • This IS NOT a home inspection which would be much more in depth.
   • The appraiser required repairs are the only thing we can set up an escrow for.
   • This IS NOT a renovation loan it is simply a way to complete the repairs that have to be done as part of the transaction.
2. We send the buyer and real estate agent the list of repairs and contractor packet.
3. Buyer obtains an itemized bid from a licensed and insured contractor for only the required repairs. Buyers are NOT allowed to complete any repairs themselves.  We need the following back from the contractor:
   • Signed bid
   • Copy of the contractor’s license
   • Completed W-9
4. Treadstone reviews and approves repair escrow accordingly. It should be noted that we typically won’t approve bids over $10,000 because the work MUST be completed in 2 weeks.  For large projects Treadstone offers different renovation loan programs.
5. Closing on the home occurs and escrow is funded. The key is “where does the money for the repair escrow come from?”
   • Seller could fund the escrow account out of their closing proceeds
   • Buyer could fund the escrow account by bringing additional funds to the closing.
   • Rural Development Only – if the home appraises for more repairs can be financed into the loan up to the appraised value.
6. Repairs are completed by the contractor.  Once the loan is closed and ownership transferred the clock is ticking and the contractor has 2 weeks to get the repairs completed.
7. After the work is completed we send the appraiser back out to the property to verify everything is done.
8. Checks are cut to the contractor.  Here’s what we need before we can cut checks.
   • Final bid from the contractor (if the price has changed from the original)
   • Signed and notarized final lien waiver
   • Buyers authorization to release funds to the contractor (otherwise we have to cut a two party check)

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