Fire Damage....

[Mr.fancypants]

Hi everyone,

Just looking for some advice. I was planning on closing on a rehab project next Wednesday the 4th, but the house was in a fire this week. I was very heartbroken to say the least, because it looks like the deal is over. My contractor told me it would cost a total of $35,000 to repair it. The purchase price was going to be $40k. The FMV is in the $80'sK. I am going to walk if the bank won't sell it now for under $20k. I don't think they want to repair it themselves. I guess my question is, even if I can repair the house and list it, are there insurance and legal problems with selling a fire damaged home? I doubt too many people will want to buy it, but I'll have to legally disclose that info to them. Will I be able to get HO insurance now? Should I just end the deal? Thanks and happy new year!!!

[tedjr]

Howdy Fancypants:

I think $20,000 may be offering too much.  Did the fire cause $35,000 damage or does the estimate include other upgrades. Of course the bank may not arrive at the same rehab costs but if they took the $35,000 and subtracted it from the $40,000 that would make the value $5000.  Simple but I am sure they will see your point of view and may dump it for $10,000. Lke you said $20,000 would be my top dollar too but do not let them know. I bet you close at $15,000 Wed. They probably will not want to rebuild and the only other option is to clear the lot and sell the lot and I am sure they would net less.

You will be able to insure it again even though the insurance industry has gone bonkers along with banking. I almost want to use money orders and tin cans and socks after the ordeal I went thru yesterday. I am posting the experience under legal next.

I know of no legal issues except full disclosure. Always bad when someone gets hurt or dies in a fire. If a death occured I would have a hard time doing the deal myself but I have heard of a duplex that was bought and sold where a gangland, drug execution of several folks happened.

I would be concerned with the smell. Cover the smoked wood  with aluminum oxide paint like the attic etc. Wash and kilz any sheetrock if you do not remove it all. There are several companies like Blackmon Mooring here in Austin that can help with the odor too.

I bought a 4 plex  once for $5000 that was involved in a fire and gutted 2 of the units including half the roof. The water tap alone was worth $3500 not to mention the foundation and parking area and the land. It was a super deal in the end.

Hope this helps. Keep us informed as to how it works out.

[Mr.fancypants]

Thanks Tedjr for your insight. I guess you and I are insomniacs huh? Apparently we didn't party hard enough last night or we'd still be sleeping. LOL!!

Anyways, I just found out about the fire yesterday. The bank will be closed all weekend, but said that monday they will get back with me. We're still waiting to hear from the fire department as to the cause. The $35,000 in repairs takes into account the original bid of $10,000 my contractor gave me for basic cosmetics before the fire occurred. I guess the numbers will change but the profit margin will stay the same? The houses ARV appraisal was $80,000 and the lot was $10,900 Is it realistic the bank will dump it for 15k or less? Also, how risky of a venture is it? I've never rehabbed a fire damaged home? Just a little uneasy...My gut is telling me to walk, but my greed is telling me to hand around.  

[tedjr]

Howdy Mr Fancypants:

I seem to be stuck in a rut about waking early, bathroom etc. Anyway too much info there already:

Fires look worse than they really are after all it is only a really dirty filty job  for a few days until all the debris is removed. I actually did an 80 unit building too that leveled about 20 of the units. Just looking at the water damaged sheetrock and soot and burned lumber etc looked horrible. I hired 12 strong workers and we had all the debris hauled away in a few weeks. After that it was just lumber etc.

I see the bankers showing their stockholders, board members, etc  pics of the burned house and them not liking the liability of owning a hazard even if it wvwntually gets boarded and secured. Vandals and vagrents still get in and for some reason even want to hangout and even live in burnouts. How proud can a comany be of a ugly burned out property. I strongly believe $15,000 would be a fair price for something that was worth $40,000 and had  that much in damage.

Do banks insure vacant REO's ? I know a vacancy policy is expensive and they may self insure?

glad I could help a tiny bit

Happy 05 Lets do some deals

[kimdrake]

The bank should be willing to sell at a lower price, and will probably be ecstatic you are still interested. The process will most likely be delayed since they will have to re-appraise the property if they haven't already.

Also, does you contractor have experience with fire-damaged properties? You may want to get bids from other contractors with this type of experience to protect yourself. Get the bids in writing.

If you haven't dealt with a fire damaged property before, take the time to check with the municipality where the home is located. For a house in this shape, different rules for rehabbing will most likely apply. The city building department willl probably need to inspect and certify repairs, and they may require insurance proceeds or your own money be held in escrow to ensure repairs are done in an acceptable manner. Find out the requirements in advance so that you don't need to remove your expensive repairs so the city can inspect later. Also having the city inspect and certify the repairs will help give your buyer a certian comfort level when you sell it.

Good luck and let us all know how this turns out!

[WilsonTaylor]

Ted Jr.

I would  think that the bank would not self insure such a property.  They would have to at least have liability insurance any way.   I am sure that bank policy would require them to have insurance on  their REOs because it is real hard to explain to stockholders how they lost $100,000 because vandals started a fire in their property.  My guess would be that the bank will get an appraisal of the damage done and get a check for it from the insurance company.  They may actually come out better on this deal because of the fire.  If the land value is $10,900, they may sell the property for less, because the remainder of the structure would cost additional money to have it removed and made into a vacant lot (ie it would cost them just to get it into that shape).  If the appraiser says that the structure is a total loss, offer them less than the land value.  They may jump at the chance to get rid of this headache quickly.

Wilson

[Mr.fancypants]

Thanks all for the words of wisdom. I think I am going to hang in there and see what happens. I'll hear from the bank Monday and will let you all know how it turns out. Thanks.

[Mr.fancypants]

Okay, so the bank finally called my realtor and explained the situation. They aren't going to cut the sale price, but are going to allow they're insurance company to fix all of the structural problem: roof, siding, decking, wiring, etc. This should shave a good portion off of my repair costs. The hang up is that my lender refuses to close until after the insurance company has completed all the repairs. Since I am dealing with a bank and everything must be cleared by committee, this could take upward to 3 months. We found that it was in fact arson. Any suggestions?

[tedjr]

Howdy MrFancypants:

Good news and bad news so it sounds. You may make more because of the fire but it will take longer. If the lender is willing to wait you may as well push forward. It may not take as long as you think either. I would want to approved the finished product and make that part of an addendum or some agreement with the bank in writing. The worst case  is you sell it to another investor for a quick profit. You more than likely will end up with a nicer house than you bargained for at an overall  cheaper price making it easier to sell.

[Mr.fancypants]

Okay, so here's the update. The listing agent called me today and told me the bank only had liability insurance on the house and that they aren't going to repair anything. They sent their own contractor out to assess the repair cost and will deduct his bid from the original asking price of $40,000. My contractor already said it would cost $25-30k to do all the repairs. If the bank is willing to sell the house for $15k or $20k and I resell the house for 85,000 after repairs, I could make a killing. Please, please pray that this deal works out. It could be my best one! Thanks everyone.

[tedjr]

Howdy MrFancypants:

Hang in there dude. The last house I bought was sold and survey ordered and the deal was going to close in two days. Realtor called a few days later and said buyer backed out. We got it even cheaper than expected.

Thanks for the update

[Mr.fancypants]

Thanks for the encouragement Tedjr. Me and my agent are just waiting for the new contract from the bank. The listing agent hasn't said how much they're going to sell it for. Hopefully it will be 15-20k.

[Mr.fancypants]

Here's just another hurdle that reared it's ugly head. My lender won't loan me any money if I don't have homeowners insurance. I've talked with a million different companies and they've all said basically the same thing, that because the house was in a major fire, they consider it a hazard and can't insure it. Any solution to my problem. I just want this deal to close!!

[tedjr]

Howdy Mr Fancypants:

I have gotten insurance on fire deals in the past. Companies are becoming harder to deal with and costing more for less service. Mold has had a lot to do with this. I got a builders risk policy from Ed Weeren Agency here in Austin. Just keep calling independent agents and you will get one. Allstate, State Farm etc are no help. Just another step for a stepper like you.

[Mr.fancypants]

Well, I pride myself on being persistent and never taking "no" for an anwser. But this deal has finally reached an impasse. After much searching and talking no one is willing to insure the house. I am totally bummed out, because I've been working on this deal since November, befor the house caught fire. 3 months of my time up in flames. Ain't that somthing. On to number next.