In most cases, a home warranty will not cover foreclosure repairs. With the uncertainty surrounding foreclosure rates in 2021, it’s important for you to know what a home warranty can and cannot do for foreclosed homes. Here are some of the most important things to consider about the relationship between foreclosed homes and home warranties.
First, what are foreclosures and why might they increase in 2021?
Simply put, a foreclosure is when a bank seizes a home and sells it because the owner failed to make timely mortgage payments. Missing just one mortgage payment can start the foreclosure process for homeowners.
The COVID-19 pandemic put millions of people out of work. Fortunately, the US government and state governments enacted moratoriums (stoppages) on foreclosures in response. However, these moratoriums are currently set to expire at the end of February 2021. If those moratoriums don’t extend past that deadline, foreclosures may spike.
While a new federal administration may be more likely to extend those moratoriums, it’s still important to be prepared for an expiration.
Why doesn’t a home warranty cover foreclosure repairs?
A home warranty from 2-10 Home Buyers Warranty (2-10 HBW) covers breakdowns caused by routine wear and tear. For a Home Warranty Service Agreement to apply, the home’s systems and appliances must be in good working order prior to its effective date. In other words, a home warranty doesn’t cover breakdowns that result from a lack of maintenance or abuse, nor does it retroactively cover breakdowns.
Generally, many foreclosed homes tend to be in a state of disrepair when they hit the market. After all, if a homeowner is unfortunate enough to not afford their mortgage payment, it’s much less likely that they’ll have the ability to commit to routine maintenance. This means that there’s a higher chance that systems and appliances will have broken down for reasons other than routine wear and tear.
Can a home warranty help if I inspect a foreclosed home first?
In many cases, Buyers aren’t allowed to inspect a foreclosed home before buying. They must buy the home as-is, or sight unseen. This makes it nearly impossible for Buyers to argue that the home’s systems and appliances were in good working order before inhabiting it, since they’d have no way of knowing.
This is a common misconception that Buyers have regarding foreclosed homes. But again, since many foreclosed homes are in a state of disrepair when they hit the market, a home warranty cannot be the solution to those problems. A home warranty generally applies under two conditions:
- The system or appliance broke down due to routine wear and tear.
- The system or appliance was in good working order before the home warranty went into effect.
For foreclosed homes, it’s almost impossible to confirm Condition 2. It’s also extremely difficult for Buyers to prove Condition 1. In short, you cannot purchase a home warranty to retroactively fix breakdowns.
Is a foreclosed home eligible for home warranty coverage if the Buyer gets everything in working order?
Yes! If your Buyer purchases a foreclosed home and then gets everything in good working order, then that home may be eligible for coverage. It’s important to note that the initial repairs would be the Buyer’s responsibility. However, once the Buyer completed those repairs, they’d be eligible for coverage with 2-10 HBW.
Foreclosed homes are often upfront bargains that may require lots of love to become livable. Given the general state of disrepair those homes are in when they hit the market, most simply aren’t eligible for home warranty coverage. That’s why you shouldn’t expect a home warranty to cover foreclosure repairs.
On the other hand, a home warranty can go a long way in protecting foreclosed houses after a Buyer gets them in good working order. Once everything’s up and running, Buyers and Sellers don’t want to have to deal with breakdowns. A home warranty can take much of the work and costs out of addressing routine breakdowns and protect their investment in the future.
2-10 HBW offers comprehensive systems and appliances home warranties to help protect your clients from unexpected repair and replacement costs. Contact us to learn more.