Conditional Use and Occupancy Certificates cause problems in closings

Real estate transactions could be adversely affected by a new trend with mortgage lenders in communities that require a code inspection and certification of use as a condition of selling a home.

Some lenders are refusing to accept a Conditional Use and Occupancy Certificate or are requiring escrow money be held to pay for all code-related repairs, according to Jamie Ridge, president and CEO of the Suburban Realtors® Alliance (SRA).

“This has been a growing problem because lenders are becoming more sensitive to risk. If they sense a municipal lien could be placed on a property that they hold the mortgage on, they don’t want any part of it,” Ridge said. “But if the lender won’t take a temporary Use and Occupancy Certificate, it really removes the ability to negotiate and forces the seller to take care of any inspection issues. It puts a big burden on the seller.”

“We definitely see that this could lead to potential losses in sales,” said Todd Umbenhauer, SRA chairman. “While not every municipality has a use and occupancy inspection requirement for the sale of a house, others have fairly comprehensive inspections.”

However, state law prescribes that unless a municipality is going to condemn a house, they are required to issue the temporary certificate in order to allow the house to sell, Ridge noted. “And the municipality is required to give the buyer 18 months to make the necessary repairs.”

Requiring a seller to escrow the money needed to make the repairs isn’t always feasible either, according to Umbenhauer. “If the seller can’t afford to make the repairs or he doesn’t have enough equity in the home, the sale’s over. This could lead to more short sales and foreclosures.”