PEST
REPORT RULES . . .
VARY WITH THE LOAN TYPE!
Many people remain confused over the rules and regulations governing pest
control reports and repair items related to various types of loans. This is an
attempt to provide a quick reference regarding this subject.
A pest control report is always required with an FHA or VA loan, but is not
a requirement with Conventional loans. If the Conventional purchase contract
and escrow instructions do not address a pest control report, the lender is
unlikely to require a report or any subsequent repair work to be done unless
recommended by the appraiser (see below for more detail). If a pest control
report is not going to be provided, it is advised that the purchase contract
exclude the pest report provision and/or specifically identify that no pest
control report will be obtained.
If a pest report in a conventional loan is acquired, typically, only section
one work is required to be completed. Section two items (generally those things
that could lead to infestation or problems) do not have to be done, at least
prior to close of escrow (COE). The exceptions to this rule can be any reference
to roof inspections and/or plumbing/water problems. These can be an issue
regardless of the loan type.
We know that if the report calls for a roof inspection, we are likely to
require at least a two year roof certification (certifying the roof water tight
for that period of time). We further recognize that if an inspection is done,
we could easily be negotiating a new roof, again prior to COE. Plumbing
problems typically, while a nuisance, can more easily be rectified than roof
concerns.
Even though the pest control report is clear, the appraiser may identify
repairs to be made as a part of the appraisal process. Additionally, the appraiser may identify un-permitted improvements or zoning
violations, all of which must be addressed and completed prior to COE.
FHA, VA and USDA loans, on the other hand, always require a pest control
report and clearance be provided in the loan file. Plus both sections one and
two work must be completed and cleared prior to COE.
FHA further requires that the pest control report include all structures
within the perimeter of the lot lines and that a clearance apply to all such
structures. VA has yet another rule regarding additional structures within the
lot boundaries. Any structure (i.e.; potting shed, detached garage, etc.) more
than 50 feet away from the main home, does not have to be included in the pest
control report or clearance reports.
Remember, FHA and VA appraisers receive copies of the Transfer Disclosure
Statement (TDS). Disclosures on the TDS, even if not included in the purchase
contract or escrow instructions, will result in the appraiser calling for
repairs for any item that is deemed a health and safety factor (i.e.; broken
windows, torn carpeting, exposed wiring, holes in walls, etc.)
The other issue that warrants a brief comment is the area of allowances
(i.e.; roof, carpet, etc.). The item related to such allowance typically must
be installed prior to COE and can not be merely a credit to the buyer. The
question of "escrow holdbacks" (wherein the escrow retains the funds
required to complete the pest control work to be accomplished after the close
of escrow) is often raised. Practically all lenders today refuse to accommodate
an escrow holdback. The one rare exception might be when weather prevents the
completion of an item (i.e.; rainy weather prevents a roof from being
installed).
While the acquisition of a pest control report may not be a condition of the
purchase transaction, a borrower may still prefer to obtain a report in order
to identify the extent of any work that may require attention after the close
of escrow.
Finally, regardless of the final requirements regarding pest work (to be
based upon loan type), it is still advisable that a pest control report be
obtained as early as possible after listing the property. In this way you avoid
surprises that could jeopardize the transaction at the last minute.
Web Page/Pest Control