No Financing for House With Broken Furnace

[Kathryn Houk]

I’m in negotiation for an REO. The listing agent informed me up front that the furnace didn’t work. He didn’t know what was wrong with it, just that it wasn’t working. I asked my lender (conventional mortgage from a bank) if that was okay. He said as long as the furnace was fixed before closing it would be fine. In the counter offer from the REO bank they clarified that no work would be allowed on the house before closing and all lender issues would need to be handled with escrow. I went back to my lender to ask if escrow was acceptable and he said no, that they only use escrow for weather related issues. He also said that they had hard and fast rules against lending on a home where the furnace didn’t work. So now my lender is saying the furnace has to be fixed before closing and the REO bank saying I’m not allowed to fix anything prior to possession. Has anyone encountered this before and know a work around? We are planning on going back to the REO bank and asking if they will let us fix the furnace and also engaging other lenders to see if they will do escrow...