Danger of renovating too soon. - Posted by GL(ON)

Posted by Pete Owings on July 08, 2002 at 09:55:28:

I never do any serious work before closing. At most, I’ll try to secure the property as best as I can. I’ll board up any open windows and possibly change the front door lock. The lock change will allow me to take measurements and work up my to-do list before it’s mine. If things go wrong, I’m only out the cost of a lock-set and some plywood. I have never had any pre-closing problems but why risk it if you don’t have to.

Danger of renovating too soon. - Posted by GL(ON)

Posted by GL(ON) on July 08, 2002 at 07:04:34:

A question has arisen about the wisdom of starting renovations before actually taking legal possession of a property.

The idea is, the deal could still fall through, or the seller could make last minute demands, and you have put yourself in a bad position if you have already committed your time and materials.

There is another, worse problem. It could cause you to lose your financing!

I heard of a case years ago where an eager renovater hired contractors who had materials delivered to the site a few days before the deal was to close. The day before the closing, the banker who was loaning the money for the deal drove by the site, saw the lumber and immediately cancelled the mortgage!

Reason: The fact that the workmen had started before the mortgage meant there was a potential for a Mechanic’s Lien that would come senior to the mortgage. The bank manager could not risk even the possibility of any obligation senior to the mortgage.

Comments from experienced renovators?

Re: Danger of renovating too soon. - Posted by William Bronchick

Posted by William Bronchick on July 08, 2002 at 09:30:43:

At least in the U.S., the mechanic’s lien is the title company’s problem. Both seller and buyer sign affidavits attesting to the fact that no unpaid work has been done that could cause a mechanic’s lien (for those of who don’t know about this, a lien can be filed even months after closing). Title companies generally disclaim coverage for mechanic’s liens if you lied about it in the affidavit.

In a commercial deal, the bank will get involved. They often drive by the project to make sure work is being completed to avoid the mechanic’ lien.

I know there will be a lot of follow Q’s to this post, so let me say this: check YOUR state law on it, since the mechanic’s lien laws varies widely from state to state.

I agree it is dumb to start work before closing, since the deal could fall through, although you would be entitled to reimbursement of work under the legal theory of “quantum meruit”. You could even file a mechanic’s lien yourself if the seller decides to get “cute” at the last minute.

Having said all this, I’ve done work before closing, but in those cases the seller was out of state and we didn’t see any real risk.