Previously finished basement - No permits pulled.

[Randy Bearden]

I purchased an REO property in Paulding County GA that had a finished basement. The bath in the basement was done when house was built. The rest was finished afterwards. I completed rehab on entire house. In the basement I replaced carpet and ceiling tiles and painted. Shortly after rehab was completed we got it under contract for $500 over asking price. Buyer is getting an FHA loan. Appraisal came back fine. Just a few days left until closing. Buyer's loan officer called me yesterday and said the appraiser shows more finished square footage than county records due to the finished basement. I explained basement was finished prior to me getting the property. He called me back today and said I need to pull permits and have basement inspected before he can go through with loan.

Now for my questions and concerns:
1. Has anybody else run in to this issue?
2. How big of a can of worms would I be opening if I decide to pull permits?
3. Will inspectors require me to open sheetrock, etc.?
4. If I decide to walk away, could this rear it's ugly head with another buyer using FHA?

I have never ran into this situation with other properties like this one. My RE agent has never ran into this situation and even the buyer's loan officer said he had not heard of this before.

Any advice or answers would be greatly appreciated.

[Randy Bearden]

Thank you guys for your input. I just wanted to update you on my situation.

After reading the link Jon Holdman sent me I made up my mind I was not inviting an inspector into my property. I know Jon must be happy just to have that nightmare over with. I called a contact at Academy Mortgage that J Scott shared with me about a month ago. She said she had never heard of such a request from a lender. She also said she would be happy to take my buyer as a client if need be.

I talked with the buyer's loan officer Monday afternoon and explained I would not pull permits on the property. He said we could reduce the selling price $7,000.00 to account for the square footage discrepancy. I told him that wasn't happening. He said he could not get the deal complete if I didn't agree to one or the other. I explained at this point I would consider this deal over and I would either put the property back on the market or recommend another lender to my buyer. He said he would inform his people of my decision.

Less than an hour later the loan officer called me back and said he had talked with his managers and they were discussing if they could bypass the issues with the permits. He would call me Tuesday to let me know the outcome.

The loan officer called me today (Tuesday) and said they were going to go ahead and get this loan done. We are set to close a week from Thursday.

Again, I truly appreciate each of you sharing your experience and information with me. It certainly help in my decisions and negotiations with this deal.

Randy