PINA Repairs and Seller’s Concessions

If you have a transaction where the Purchaser already receives full Seller’s Concessions, be careful with credits on the PINA. Your Purchasers may find a necessary repair as a result of their Property Inspection that they do not want the Seller to repair. Perhaps the Purchaser is afraid that the Seller may not complete the repair in the way the Purchaser wants it done, or the Seller is just not willing to take the time to make the repairs. In these circumstances, it is usually good practice to complete the PINA so that the Seller gives the Purchaser a credit at Closing for the amount of the repair.

While this is the normal procedure, one must be careful if the Purchaser is already receiving full Seller’s Concessions. You see, a repair credit is considered by the lender to be a “Seller’s Concession”. That is exactly what it is. It is the Seller conceding part of the Purchase Price to the Purchaser.

However, if the Purchaser already has received the full amount of the Seller’s Concessions, there is no further room for additional concessions. The repair credit will exceed the amount of the permissible Seller’s Concessions. As a result, this credit will not be permitted by the lender. Now, the Purchasers will have neither the repair, nor the money to make the repair themselves!

Very often we do not learn about this problem until the last days before Closing. We send the Closing Statement to the lender and the lender tells us that the repair credit exceeds the permissible Seller’s Concessions and will not be allowed. This is a very bad result for the Purchasers.

First, it is very important to be sure that every PINA, Addendum or other change to the Contract must be delivered to the lender. Please be sure to forward copies of these documents to the loan officer or loan processor as soon as they are available.

Nevertheless, if there are already full Seller’s Concessions, it is unlikely that any additional repair credit to the Purchaser will be permitted, even if we notify the lender in advance. So, what do we do? The first option is to have the Seller make the necessary repair prior to closing. On the PINA be careful to list all of the details of the work to be done. It is even a good idea to attach the estimate for the work to be done. For example, if a roof repair is needed, Paragraph PINA2(D)(3) should read: Have the roof repaired according to the terms of the attached estimate of Really Good Roofers dated March 22, 2013.”

But what if the Seller still refuses to make the repair prior to Closing? As long as the lender does not demand that the work be completed prior to closing, one option is to have the Seller pre-pay the contractor for the work. Your contractor would have to be very trustworthy, but this can work. I have also had the Seller at Closing deliver a bank draft payable to the contractor for the work to be done. One of the attorneys can hold onto that check until the work is completed. In both of these examples, the Seller has paid for the work and there are no credits to the Purchaser that would affect the Purchaser’s total Seller’s Concessions.

Just remember that repair credits count as Seller’s Concessions. The lender will only allow these concessions to the maximum of the loan product chosen. If the total of the Seller’s Concessions listed on the Contract and the repair credits exceeds the allowable concessions, the lender will not permit the excess to be credited to the Purchaser. The Purchaser will have lost some or all of the repair credit they wanted.