THE extensive power failures that have paralyzed the region in the wake of Hurricane Sandy have understandably delayed closings in mortgage deals that had otherwise been buttoned up. But lenders are adding to the logistical bottleneck by requiring that properties in affected areas be reinspected for damage.
“If you are in a FEMA-declared disaster area or emergency area,” said Jason Auerbach, a divisional manager for First Choice Loan Services, of Morganville, N.J., “banks are requiring an inspection of the home to affirm whether there was damage done. They are reinspecting properties to make sure it’s still a functional property that can be lived in.”
FEMA has declared disaster areas in much of coastal New York, New Jersey and Connecticut. However, even properties outside these areas may still be subject to another inspection because of agreements with the investors who bought closed loans, noted Joshua Weinberg, the senior vice president for compliance of First Choice.
For properties in areas that didn’t suffer extensive storm damage, the inspection may constitute no more than a drive-by. The delay in such cases may be no more than a few days.
Both buyer and seller may also be required to sign a form attesting that they agree the property suffered no storm-related damage. Regardless, buyers should do a thorough walk-through well before the day of closing, advises Scott Penner, a real estate lawyer in Milford, Conn.
“What we don’t want to have the day of the closing is that they go into the property and see
evidence of flood damage,” Mr. Penner said. “Then they’ll want to negotiate at that time, and it creates all sorts of problems.”
So far, lenders appear to be honoring interest-rate guarantees that have expired because the storm delayed the closing.
“What we’ve seen is that lenders have extended the rate locks without cost to the borrower,” Mr. Penner said. “It’s not a requirement, but that’s what they’ve been doing.”
In deals involving storm-damaged properties, negotiations will most likely have to start all over again — provided the buyer still wants the house.
“Under the contract,” Mr. Penner said, “generally the seller is obligated to repair the damage. The question is, can the seller repair it? And is it adequate to the buyer?”
Denise Walsh, a partner in Gigliotti & Walsh Fine Properties, which specializes in beach homes in Fairfield, Conn., was negotiating a deal for a waterfront property when the storm hit.
“Don’t you know the buyer got a boat, rowed by the house that he’s negotiating and took photos,” Ms. Walsh said. “He e-mailed me photos of the property and said: ‘Good news! I’m still interested. But what do we do about this?’ So now the negotiation is going to take a different turn.”
In cases in which buyer and seller are able to reach a new agreement, an appraiser will be sent out to verify that the house is back in functional condition after repairs are completed.
One factor that buyers may want to consider in deciding whether to go through with a purchase is the prospect of rising premiums.
“Going forward, a lot of insurance companies may re-evaluate their risk exposures,” noted Greg McBride, a senior financial analyst for Bankrate.com. “In Florida, any year in which they have a bad year of hurricanes, there’s a mass exodus of insurance companies. This can result in higher premiums.”
As to whether the storm’s impact will drive down property values on the coast, Ms. Walsh expects any dip in prices to be short-lived.
“There probably will be some deals,” she said, “because there will be some people who don’t have the cash to make the repairs, and they will just decide to sell. But I would be shocked if the market didn’t go right back to where it was, come the spring.”