Lenders are getting tough on termites.
In a few recent transactions, lenders wanted to know whether any structural damage occurred to the house in cases where termites or other wood-destroying insects were discovered during an inspection.
What’s more, the lender required that a licensed contractor provide a written statement verifying whether the wood-destroying insect damage was cosmetic or structural in nature.
“Lenders are paying more attention to WDI [wood-destroying inspection] reports to protect their investment,” said Jon Okun of Prosperity Home Loans.
“I think a good rule is that if the contract states that a WDI inspection will be done, be prepared to show the inspection report to the lender and provide a statement from a licensed contractor about the type of damage found,” Okun added. “And, any damages found will need to be repaired prior to settlement.”
Why are wood destroying insects on lenders’ radar?
First, lenders are paying more attention to all aspects of the contract to ensure that all terms are properly executed. This provides them with a more valuable and risk-free loan to sell on the secondary market.
If the buyer and seller agreed to a WDI as part of the contract, lenders want to ensure that those terms were properly executed and repairs were made as per the contract.
Second, wood-destroying insects cause billions of dollars of structural damage each year and homeowners spend more than $2 billion each year to treat them, according to the U.S. Environmental Protection Agency.
Lenders wish to protect their buyers from expensive repairs by investigating the extent of damage caused by wood-destroying insects prior to settlement. It’s important to know that homeowners insurance does not cover wood-destroying insect damage.
“I have personally seen at least 30 percent of WDI inspection reports showing that treatment is needed and about 20 percent showing that there is damage, so wood destroying insects are prevalent in our area,” Okun said.
How prevalent are they in our region?
“There are only two kinds of homes — those that have termites and those that will get termites,” said Rusty Markland, operations manager of PestNow, a locally owned pest control and extermination company.
“Lenders have gotten tighter in the last few years,” Markland added. “Now lenders are requiring that any reported damages be thoroughly inspected by a licensed contractor.”
Lenders will not fund a loan until they receive a statement from a licensed contractor and, if any structural damage does exist, proof that it has been repaired.
Beginning on Oct. 1, the language regarding insect inspections in tRegional Sales Contracts will change.
The paragraph in the contract will have a new title, changing from Termite Inspection to Wood Destroying Insect Inspection.
The new language states that the buyer, at the buyer’s expense, may choose to have a wood destroying insect inspection (except under VA financing, then it is the seller’s expense). Currently, it is negotiable as to who pays for the inspection.
However, any treatment or repairs of damage will be made at the seller’s expense, plus treatment must be completed by a licensed pest control company and repairs must be made by a licensed contractor.
“This is usually the cause of crisis right at the point of settlement,” Markland said. He said he receives high anxiety phone calls asking for last-minute statements regarding the extent of damage caused by infestation.
However, Markland will not provide those statements.
“Buyers don’t want a termite guy to make the judgment on the extent of the damage,” Markland said. “An inspector is versed and trained to spot wood-destroying insect damage, but they are not trained or licensed to determine the extent of the damage.”
“In addition, we can only inspect what is visible. We cannot see behind walls or move furniture and personal items,” Markland said. “Buyers should understand that a WDI inspection is not a guarantee that structural damage does or does not exist behind the walls.”
The best way to minimize WDI infestation or damage is preventative maintenance.
Tips for sellers:
All homeowners should be aware of, and try to eliminate, conditions that promote insect infestation in and around structures. Most importantly, remove any earth to wood contact. Here is what sellers should know:
Insulation at the foundation should not be in contact with soil.
Move firewood away from structures.
Remove wood debris in a crawl space.
Do not allow wood mulch or ground cover to contact a structure.
Trim tree branches that are touching a structure.
Replace decaying wood on all structures.
Get an annual WDI and treat when necessary.
These tasks can reduce or eliminate any WDI issues when it is time to sell. The risk of WDI infestation or damage to properly treated and maintained homes is minimal.
Tips for buyers:
Buyers have false expectations that the recently purchased home, having had a WDI as part of their purchase, is free of wood-destroying insects and damage. No home is exempt from wood-destroying insect damage over the years. Here are some ways to investigate the likelihood of infestation or damage in the home.
Ask the sellers if they have had routine annual WDI and treatment.
Inspect the home for any earth to wood contact.
Ask the sellers to remove any obstructions to a thorough inspection.
Look for areas of stress or moisture to drywall and paint — they can be clues.
Floors that give under your weight or slope can be clues.
A negative grade toward the house will bring soil and water toward the foundation.
Failed gutter systems bring water and moisture to the foundation.
These tasks can reduce or eliminate the discovery of unwanted roommates in your new home.