Is a Septic Inspection necessary on a foreclosure?

[Francesca Baglio]

Hey BP! I'm about to pull the trigger on my first deal. It's a foreclosure, so I can't have any contingencies with my offer. Before I submit my formal offer, I'm wondering how important it is to do a septic inspection. The house was built in 1966, so there's a chance the cesspool could be very old. I'm still waiting to hear back from the town about when it was installed/last replaced. In the meantime, I would like to make an offer before the deal gets scooped up. I have a regular home inspection this afternoon. Should I just make an offer if the inspection goes well, or would you suggest a septic inspection before moving forward? Thanks! Francesca

[David Krulac]

@Francesca Baglio

Septic repairs or replacements can be very expensive.  The prices vary locally, call some local septic installers in your area to get ballpark figures.  Here, in PA. a full replacement can be $20,000 Plus.  Here the state rules for septic testing did not come into place until 1972, so all systems before that are a hodge podge of unregulated, who knows what systems, and all are pre-permitted, which means they were never permitted, inspected or approved before installation.  Here that would be the worst time frame as there are no records of any system in the state before 1972.

A big foreclosure buying company here bought a house at Sheriff Sale and it turns out that the septic had failed, they had to have new septic tests done in a different location on the lot, but the only spot on the lot that passed the septic test was too close (PA state requires 100 feet minimum well isolation distance) to the existing well. Therefore they had to have a new well installed in addition to a new septic. FHA rules also require 100 feet minimum well isolation distance. We had a house for sale, the buyer wanted to go FHA, but when the distance between the septic in the front yard and the well in the back yard was measured, it only turned out to be 95 feet. So no FHA, and the buyer walked.

A worst case scenario would be that there is no spot on the lot that passes septic test and here the alternative would be a holding tank (no drain field) and would have to be pumped out every time it filled up, which could be as frequently as once a week with a family usage.  A septic pumping could be $200 every time.

As a ancillary function of real estate investing, I took the state mandatory courses and got licensed to do septic testing, not because I wanted to do septic testing, but only as part of own knowledge but also for real estate investing.  As a result I was able to expand my real estate investing to land subdivision and development and buying and selling scattered vacant lot.  One real estate investing niche that grew out of that background was that I bought lots and land that FAILED the septic testing and were unbuildable.  The prices were about 10 cents on a dollar, some lots were purchased for $50 and some lots were given to me for free.  One example was buying a failed septic tested lot for $1,500 and retesting and getting a passing test result and then selling the lot for $80,000, for a slight profit.

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