Urgent: Interior appraisal required when no interior access?

Question

Hi,

I am buying a property owner occupied from a bank foreclosure with $22K deposit at risk without contingencies. There are apparently squatters there and they won't allow access and bank requires I give them 30 day notice and only after closing before contacting them. I attempted contact by ringing doorbell (thinking they probably would appreciate more notice than less) but no one answered. From exterior I can see there is someone living there as there are cats inside.

I am attempting to obtain FHA or conventional financing. Lenders are telling me that an interior appraisal is required. I have sold properties before with an exterior only appraisal and did equity lines same way, so I need to know what are the exceptions to an interior appraisal when no interior access so I can close. I have 30 days to close.

If interior appraisal is required, I would appreciate any feedback on how to look for a lender that will allow owner occupied sale with private money or less strict terms. The house is being purchased 70 cents on the dollar so has good LTV. I am hoping to close with 5-10% down though so conventional with long term low rate would be optimal.

Thank you!

Anna

Caroline Gerardo · Answer

Generally with low down payment (anything less than 19%) you will NOT get an appraisal waiver. FHA requires a full interior. I assume the squatters are busy ripping out the copper piping. You cannot legally secure the house as you do not own it. Offer them cash to go to a local diner for an hour. How are you going to fix the code violations inside when they come back in through a window? You  need to evict them when you close, change locks, get a Doberman Pincher, motion lights, and an alarm.

Here is what I would do: pay for appraisal and set the time for Wednesday IN THE MORNING. Is there a listing agent who is local? Is the power on? Power needs to be on for the appraiser. Even for conventional with MI you won't get a waiver unless you put large down payment. Why have you not already applied for the loan? If you applied today I could tell you if you got a waiver. Maybe apply two places to see what amount of down payment needed to get a waiver?

Assuming you need an interior:

Get two large men fully armed to meet you there two hours before the appointment. Have cash to bribe them to leave. Bring: three spare bolt lock sets, crowbar, tool kit, cell phone fully charged, camera, lots of cardboard boxes and used bubble wrap that you glean from some furniture store that throws those out, pickup truck, gloves, apron, masks, and febreeze.  I assume it will be gross inside. I bought a house with a dead pot belly pig inside once.

Negotiate with them to go to a diner. Don't tell them that you intend to pack some of their stuff, but tell them you will pay for "movers." These people know they are trespassing and they don't care so do not threaten or lose your temper. If you call the police they might not come unless there is a shooting, sorry.  Take many photographs when you enter.

Tristan Pearrow · Answer

Hi Anna, there is a possible alternative to having the interior appraised. You could take out a renovation loan - the bank will not care about the condition of the interior of the property. As a matter of fact, they expect it to need work, because the loan product itself is designed to get the house "up to appraisal" - therefore you could close with everything just as it is.

Not all lenders or banks do these loans or know how to do them, but there are both FHA and Conventional renovation products available with 3% - 3.5% down for first-time home buyers just like a regualar purchase.

Bruce Woodruff · Answer

MAke sure you get that interior looked at and estimated for repairs (Separate from your bank appraisal)

That 30% value you think you have could get eaten up really fast.......

Minna Reid · Answer

I agree with Scott, try to bargain with them. Maybe they will allow the appraisal. Or better yet, maybe you can get them out for good with cash for keys.

If not, I think you will have a very tough time. I do recall reading that Fannie/Freddie were allowing desktop appraisals since covid, but I think that may be a long shot.

FHA is a dead end for sure. They will want in, and since you have not seen the condition of the interior, what if they flag repairs? How will you get these repairs done when the tenants wont let you in? Also FHA requires occupancy within a certain period of time. It will be very hard to document that the tenants will leave by that time.

Also 30 days may not be enough time for some traditional lenders.

I assume you have not seen the interior either? How do you know you are paying 70% without knowing interior condition?

I would not risk $22k and attempt to go down the mortgage road here as the risk of success is low. I would recommend using hard money to close, and then refinancing once you've dealt with the tenant situation.

Scott Mac · Answer

Hi Anna,

Have you talked to these people in person?

How do you know you and the appraiser can't get in?

Maybe they will cooperate--for a helping hand to get into a better situation, such as $100 to $500.

Tell them about Section-8 and welfare and how to get it.

I'd recommend you not going into the unit with them there (let the appraiser do that, and just wait outside) and taking along a powerful protector if you meet them (you don't need to become a crime statistic, especially if carrying money).

Good Luck!

Bruce Woodruff · Answer

Bingo....and that's why the forum is here.....

Lydia S. · Answer

@Anna Davis

Do you have a financing contingency in your contract?  If an appraisal can’t be completed, you can’t get the loan, and your contingency should protect your earnest money, as well as some or all of your appraisal fee.

Tristan Pearrow · Answer

Likewise I do these all the time and was thinking the issue was that the home interior wouldn't pass as-is appraisal. Now I'm seeing they literally can't get inside the house. That's a tough one.

Caroline Gerardo · Answer

@Tristan Pearrow @Bruce Woodruff Freddie Homestyle and CHOICERenovation and Fannie Homestyle and FHA 203k all require appraisal interior inspection some require you to have a contractor. I do all four of these products every day.  She needs 30% and a hard money loan to close. Then after the fact refinance when you get it cleaned up and everything to code. Even if she gets appraiser in the condition inside is going to end up with repairs before close.

Raymond J. Rodrigues · Answer

@Anna Davis

Urgent: Interior appraisal required when no interior access?

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