Mortgage Lenders, Insurance Companies Do Not Require Inspections -BYLN-

Daily Herald (Arlington Heights, IL), September 30, 2011 | Go to article overview

Mortgage Lenders, Insurance Companies Do Not Require Inspections -BYLN-


Q.As a mortgage broker, it bothers me that home inspection reports are never included with a loan application. This is a risky omission that became clear last week when I hired a home inspector for a house I'm buying. My inspector found major defects in a home that is only three years old. When I consider that my company and other lenders routinely approve purchase loans without any disclosure of property defects, I realize that the mortgage profession is essentially "driving blind," handing out six figure loans on properties we know very little about. What can be done to close this major liability gap?

A.Lack of concern for property defects is a chronic blind spot in the mortgage loan business. And your industry is not alone in this careless practice. Companies that write homeowners insurance policies are equally unconcerned about property defect issues. In nearly every case, mortgage loans and homeowners insurance policies are written without any knowledge of conditions affecting foundations, site drainage, roofing, plumbing, heating, electrical violations, fire safety violations, and so on.

Lenders routinely write purchase loans without knowing the condition of the collateral that secures their money. Loans are based exclusively on market appraisals, without adjusting those valuations for the costs of needed repairs. Likewise, insurance companies underwrite the fire safety of properties without any disclosures of building violations that could increase the likelihood of a fire or other costly mishap.

Some insurance companies are beginning to show an interest in defect disclosure, but they provide abbreviated report forms for home inspectors to fill out, rather than requesting copies of actual home inspection reports. …

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