While in contract on a short sale, any way we can negotiate with the bank?

Question

We entered into contract on a short sale property, and during the inspection, we found a pretty serious electrical issue. The entire electrical wiring for the home is not up to code and is a major safety hazard. Because of this, we asked our Agent to find out if possible to request a credit from the bank at the close of escrow so we can get this taken care of. Our Agent told us that the bank is already incurring a loss on this property and will probably just cancel the contract if they see that we are asking for a credit. We are really interested in this property, and we are prepared to have a licensed electrician look into the issue and evaluate costs. At first look, we have been given a quote of $5K to cleanup and take care of all the wiring issues and bring the home up to code. It might be less (or more) after an actual electrician looks into the problem but we really would rather not have to pay for this ourselves. Anyone have any advise on how to handle this mess?

Answer 1

You can always ask, but the seller/bank is not obliged to grant your request.  You do not indicate what sort of electrical issues you found, but DO be advised that wiring not in compliance with current code is not necessarily unsafe.  You can certainly ask for repairs to the safety hazards, but I find it difficult to imagine that the entire wiring system is some sort of safety hazard.

Follow up:  If you have not yet had an electrician analyze the situation, I recommend that you do so as quickly as possible.  What appears to be a hazard may NOT be one, since those 'open wires' may not be live.  Even though it is rather sloppy to let 'dead wires' laying around, it isn't against electrical codes.  As long as all LIVE wires are properly handled, there may be no issue.  Only a qualified electrician can check and advise you further.

Answer 2

The bank did agree to sell the property for less than the loan balance meaning, that they are operating at a loss here and they may have already disclosed that the property is "as is", therefore no repairs will be done at the bank's expense.  Your agent is right, the lender will not approve credit for repairs.

Answer 3

You'd be asking the Seller for a credit and then in turn the existing Lender would be taking the hit for it.

It's possible they may come down slightly more. Is the Lender still processing the the short sale or have they accepted it already? If they are processing it then an amendment to the contract together with the inspection report should be submitted to help your case. If the Lender has already accepted the short sale and provided the final figures then fat chance of them changing it.

I'm curious if you are getting a loan for your purchase. If so, will your Lender accept the condition of the property?  

Answer 4

Your agent may very well be right, if this is already a marginal deal for the bank.  So you may choose to either eat the cost yourselves (if the deal is really good), or ask for the money back and see what happens (and you may well have a chance to remove this request later if the bank balks on it).

Anyhow, assuming you have an inspection contingency in the contract you can ask the bank to cover this cost (and this is in fact standard operating procedure) but if this is a really good deal already, it could cost you the contract, as your agent states (or they could agree to some of all of the costs as well).  

Sorry if this doesn't help much (saying you can ask for this, and essentially anything can happen). Its just very hard to guess how the bank will respond.