House #2: The Bulge House

Looks like I picked up my second house yesterday. While this one is far from a done deal, I submitted an offer, had several round of counter-offers, and ultimately we came to an agreement on terms and price (i.e., we have a contract). The reason I say this isn’t a done deal (other than the fact that a lot can generally happen between the contract and the closing) is that there are two specific issues with this house that I need to get more information about before locking myself into the purchase; because this is an REO property (a foreclosure that is now owned by the bank), there is no information that the seller can/will provide about the condition, history, or problems with the house. So, I’m on my own with respect to due diligence.

Luckily I factored a 10-day due diligence and inspection period into the contract, so I have 10 days to deal with any issues I need to deal with and decide whether I want to move forward with this one. The first issue is that the house used to have a garage, which was at some point was closed up and converted to an extra room. While this isn’t a bad thing in-and-of itself, if the owner who did the garage conversion didn’t pull all the permits and get all the proper inspections, then this is a considered an “illegal garage conversion.” The reason illegal garage conversions are bad is two-fold:

• If the county finds out about the conversion at some point (for example, if I were to pull permits or get inspections for other work being done), it’s possible that I’ll get fined for the illegal conversion, and may even have to go through a costly inspection (tear down sheetrock, etc) to validate and potentially fix anything that wasn’t done properly;
• If the illegal conversion is discovered and not corrected, when I go to sell the property, I may have problems selling to buyers who want to use government subsidized loans (FHA, VA, etc). Since these are my primary buying targets (first-time home buyers), it could make it much more difficult to resell the property.

All that said, even if the garage conversion is illegal (which I suspect it is), the cost of remediation (or the risk of ignoring it) may not be very high, and I very likely may move forward on this one anyway.

The second issue that needs to be checked-out before I were to buy this house is that one of the main structural walls that runs down the middle of the house is bulging out on both sides right in the center of the wall. While it could be a structural issue, there is no other evidence of structural instability in the house (at least not that I noticed, but I’m certainly no expert). So, my hope is that that the builders just had to sheet-rock around some structural component (a plumbing pipe or fixture, for example), and that’s the reason for the bulge. Certainly, if the bulge is the result of a structural defect, it likely won’t be worth buying the house without an additional and considerable price discount.

I have 10 days to do my due diligence on these and other issues that come up, of which four of those days I’ll be out of commission for my wedding. So, it’s going to be a busy week, but I’m starting to get used to that. I’ll post more updates and details about the bulge house over the next week, if/when this due diligence issues get resolved.