REO Property with Oil Tank Strategy

[Derek Famulari]

Hey BP Family! 

I am hoping to pick your brains on a strategy when negotiating a deal with a REO property with an inactive, underground oil tank on the property.

Here is some background: The property is REO 2-Fam and located in NJ. The bank is only accepting offers for FHA 203K (SCORE!). The property, however, has a buried oil tank. The property is vacant for I don't know how long; and I have no idea whether the tank has been properly maintained.

Here is my issue: The property is REO - so the odds of me getting the bank to agree to remove or pay for the removal of the tank is slim to none (closer to none). Personally, I have no problem pulling the tank myself since this will be a 203k project (the entire home required a full rehab) and I can budget the removal into my rehab costs (Right now I am estimating $150k rehab). However, I don't know how costly the removal will be until I get the tank inspected; and if the tank is not sealed and clean up is required - a painless oil tank removal could potentially result in a $100k removal/clean up. If I experience the latter - this deal is dead and I have a nightmare on my hands.

Here are some thoughts/questions:

1. Since I am in NJ and we have that "lovely" attorney review period - would you suggest I try to get an oil tank inspector to check out the oil tank before we conclude attorney review, and if the tank is a deal killer - I can walk away clean?

2. Would a general inspection contingency in the contract cover an oil tank, and allow me to inspect after attorney review and still walk away if the removal is too costly?

3. Should I put a carve-out into the contract that should the removal exceed $10,000 (or some other number) - the contract is void?

4. Could I simply have my lender send me a mortgage denial letter due to the inactive oil tank (I have read that some banks and insurers won't mortgage or insure a home with an inactive oil tank)?

5. Any other ideas?

Ideally, I want to put as little contingencies into the contract since I am dealing with a bank, and they just want to be sure the home will sell.  

I feel as though this post can fit in quite a few other Forum Categories so if you know of one that I can find some additional input - feel free to suggest.

Thanks!

[Thomas Waters]

Hey Derek! Seems like you've got a good grip on the deal, but just want to make sure you plan on making this property your primary residence. My understanding is that you'd need to be an owner occupant for at least 1 year before qualifying for these funds.

This from HUD's website:

"Can an investor use the 203(k) program?

No. In October, 1996, the Department placed a moratorium on investor participation in the 203(k) Rehabilitation Mortgage Program.