I have seen a last minute termite inspection issue cropping up lately that should be discussed. Many times I will see that the sales contract will not call for a termite inspection. In this market of limited inventory, one way the buyers are competing is by waiving contingencies, and one of those competitive ideas is to waive the termite inspection contingency. Sometimes when waiving this contingency a buyer will still secure the right to get a termite inspection done, just as a courtesy so they know what is going on, but they still won’t have any right to ask the seller to pay to remediate any termite activity or termite damage. Maybe getting a termite treatment done is needed before they move in, which they as buyers will be responsible to pay.
When a termite inspection is done, even if it is not part of the contract and is only being done as a courtesy to the buyer, this usually means the buyer is paying for it. This means that a title company will usually list it on the HUD1/Settlement Statement and show the fee as being paid by the buyer. However, this can create a problem.
Once the termite inspection fee is listed on the HUD1, it will be a requirement of the lender to see a copy of it. If the lender sees that the termite inspection company is reporting active termite infestation or termite damage, they will require the termite infestation be treated or that the damage be repaired. Herein lies the problem.
In this case I will be told by the realtors, “Oh, don’t worry about the needed termite repair or termite treatment, the contract is not contingent on a termite inspection, we just let the buyer do a termite inspection as a courtesy, so the buyers will do the repair or treatment after settlement.” However, it is a problem. Once a lender becomes aware of information, they have to act on it. A lender cannot ignore termite problems.
This will cause a potential delay in your real estate settlement, since at this point the buyers would need to scramble to get a termite treatment or the termite damage repaired. The treatment and/or repairs may not be able to be done and still allow enough lead time for your lender to review the termite treatment documentation and prepare your closing documents.
So avoid a last minute delay, and if you are waiving a termite inspection as a buyer, do the inspection after settlement. If you are worried about timing or moving into a house with active termites, you can always authorize the termite inspection company to come out the day of settlement. They can do a treatment as needed on that day. This will save time over doing the inspection first and having them come out later on a subsequent day for any needed treatment.