The Escrow Money Saga

My poor clients.  They are the victims of the single worst escrow money debacle I’ve ever experienced or even heard of.  Here’s the story:

My clients agreed to purchase a home in January.   At the inspection, the septic inspector noted that there was a “water conditioning” system that was dumping waste water into the house’s main septic system.  This situation was not to code and he so noted it.  The remedy for the situation, according to two contractors, was to install a separate septic system for this “water conditioner” at the cost of around $1500 when the ground thaws.

Since it was February, the contractor would have charged double to do the work before closing, or $3000.  Amazingly, I had to fight tooth and nail to get the mortgage lender to not require this.  They wanted the borrower to spend twice as much money to have this separate septic system installed in the winter.  Eventually, they agreed to set aside $2000 in escrow at closing for both the separate septic system and another repair.

Right before the closing, the listing agent told me that the seller was totally baffled by the situation since the “water conditioner” was in fact a water filter for iron.   Upon hearing this, I called the company that made the filter, had them come out to the property and they disconnected it altogether, at a cost of nearly $200 to the buyer.  They confirmed that the item in question was a water filter that did not backwash anything into the system – it just filtered iron out of it.

So, the water filter isn’t discharging anything into the septic system and we provide documentation to the lender.  Still, they require the $2,000 be set aside in escrow from the buyer’s funds.  Because the terms of the agreement with the seller, we had to close on time and couldn’t argue with the lender any longer.

In order for the buyer to get the money back, they need to provide documentation that the repairs have been made.  But what if one of the repairs was unneccessary because the inspector made a mistake?  This is what I and the buyers have been fighting with the lender over for almost 5 months. 

Since the closing, the buyer had one of the required repairs made because this was not in dispute.  The other repair, we argue is unneccessary.  I even had the town health department come and inspect the water filter and write a letter saying that it is a water filter and that it is to code.  This was three months ago…

Still, the lender refuses to release the buyer’s money unless a new septic system is installed – even withholding the money for the repair that was made.  According to the lender, the new septic system has to be installed because the closing documents say so (not a joke). 

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Possibly related posts: (automatically generated)

• Escrow Money Saga – A Happy Ending
• Home Buying 101 – Step 10: Get a Home Inspection
• Septic System Additives – A Waste of Money