Inspection Reports Going To Lenders

[Garet]

I've heard that the 2013 standard Colorado purchase contract has the inspection resolution letter going to the lender. Some lenders are requiring a copy of the inspection report as well, and dictating terms of what gets fixed and who fixes it.

Is this just a Colorado thing, or is it happening in other areas as well?

[Les]

Hey Garet,

I think it is happening everywhere. I advise my clients to withhold the report because it is not a requirement to have an inspection. You really do not have any control over what they do with report. The sneaky part is now the agent and client will want you to write in a slippery way and not really say anything.

Example. house listed for $120,000, an offer made for $110,000 and accepted by seller. Buyers lender gets inspection report and sees the roof is iffy and wants it escrowed at 1 1/2 times $5000 or $7500. Or they can just require it done by someone before loan is approved. Likely could make all this work except now the lender has access to info and accepts the cracked basement floor, reversed polarity, broken seals on windows, defective safety on water heater and garage door etc.. Or may not accept it until everything is repaired. You can see where this goes.

There are local gov'ts that require home inspections upon sale and transfer to make houses code compliant.

Seems to me that this is how appraisers got their sweet deal from buyers and lenders; buyers pay, lenders own report.

[Marc]

Hey Garet,

I think it is happening everywhere. I advise my clients to withhold the report because it is not a requirement to have an inspection...

Hello Les. You recommend this as a form of protest against the lender? Or is a lender prohibited from requiring a report in areas where the state doesn't also require it?

Marc

[AHI in AR]

I've not been told by anyone that lenders are requiring reports here.

[hausdok]

Hi,

I don't think the state can compel anyone to violate a copyright. Copyright your reports and then explain to the client, and the client's agent, that the report is a copyrighted work product. Explain that they don't pay you for the report, they pay your for your time and expertise and the time you must devote to preparing a report, but that the report is your work product essentially licensed to the client for the client's use only.

Tell the client that if it is necessary he/she can share the report with his/her agent and the seller; but make sure the client knows that if he/she shares the report with anyone else without your permission he/she is violating your copyright. Also tell the client that if he/she walks away from the house he/she is expected to instruct the agent and seller (If they were provided copies) that nobody else may rely on the report and that the agent and seller are to destroy their copies.

Then, if you are fortunate enough to be in a licensed state you can point out that your licensing law says you must comply with law and therefore can't give them a copy without the inspector's permission because the report is copyrighted. They should therefore tell the lender to call the inspector for permission.

That's when they call the inspector and get told politely and forefully to go piss up a rope.

We have an additional piece of armor in our arsenal here; state law says that nobody else gets a copy of the report, even if it isn't copyrighted, other than the client - unless the client says it's OK. So, when they call I just tell them that state law says they aren't entitled to a copy and they hang up frustrated and impotent.

So far, been sticking to this narrative - with the exception of the state law part - since 1996 and it's worked well for me and hasn't been much of a hassle. It got much better after licensing went through and the board inserted that little state law prohibition requiring the client's permission. It places the 3rd party in a catch 22 situation - the client doesn't want to get caught voilating a copyright and is therefore reluctant to give permission to share the report with a third party and without that permission we can't share the report.

ONE TEAM - ONE FIGHT!!!

Mike

[Marc]

Could you quote statute and section on that Mike? I'd like to look it up.

Marc

[John Kogel]

How about writing a report synopsis for the lenders and insurance agents?

Then charge them $$ for it? Just a thought. This hasn't come up here yet.

I sometimes advise the greener buyers to only answer questions when they are asked, and keep the report as private info.

[Mark P]

I don't bring it up, but if asked, I tell my clients to never give a copy of the report to the lender. There is no upside to doing so and can only cause them problems.

[allseason]

In New Jersey an inspector cannot release the report or discuss the results of the inspection to anyone but the buyer without the buyer's written permission. I have a permission slip that I have the buyer sign stating who they would like to receive a copy, or no one at all.

[gtblum]

The sneaky part is now the agent and client will want you to write in a slippery way and not really say anything.

I had a client, an agent, and a banker, badgering me last year, to bless off a foundation repair made to keep water from entering the basement.

The client had somehow been allowed to bandaid the inside of the wall with concrete, himself.

The repair was of course, not what was needed to be done, there was still water coming in and I ended up in the middle of an Email war where I explained if the bank was interested in hiring my opinion of the repairs made, they could do so in a business like manor, sign a contract, and cut me check. Until then, they would not receive anything from me.

I was told they ended up calling an I'll do anything for a buck guy, and he put his ass in the sling.

I have also heard a similar story from another inspector who had a bank contact him about giving his ok in writing about the structural stability of a bowed interior wall he had written about in his report.

I think the banks are starting to look at using us for some sort of added assurance they're making a good investment. Remember, these folks, at least around here, have barely had a clue or ever cared about the role we play in the course of a transaction. I know it makes no sense when they have appraisers they pay, but there must be a reason behind this.

Maybe they're starting to understand the value of what we do and they see that the less money someone has to put into a broken down shack, the easier it is to pay the mortgage. Even if they plan to sell the paper, later.

I don't think they understand our limitations. Maybe it's time for this profession to direct some education toward them.

Then again, Maybe this is just another one of my crazy ideas, like when I mentioned Facebook a few years back, and got laughed at and told it was for kids.

[Marc]

I don't think they understand our limitations. Maybe it's time for this profession to direct some education toward them.

I agree, and Gary old buddy, you're just the man for the job. When these banks, attorneys or whatever contact you with half-thought, half-twit needs, just give them a piece of your mind, some of that good old, concise, well thought writing like you do on your posts and in time they'll all come about and start making more sense to everyone.

I do it all the time. It's a practiced art.

Marc

[gtblum]

I don't think they understand our limitations. Maybe it's time for this profession to direct some education toward them.

I agree, and Gary old buddy, you're just the man for the job. When these banks, attorneys or whatever contact you with half-thought, half-twit needs, just give them a piece of your mind, some of that good old, concise, well thought writing like you do on your posts and in time they'll all come about and start making more sense to everyone.

I do it all the time. It's a practiced art.

Marc

That's pretty funny Marc, but I didn't mean educate by beating them up. I'm serious. I don't think they know.

Why you think they seem to be more involved? Any thoughts?

BTW. I did apologize to you last week. []

[Marc]

That's pretty funny Marc, but I didn't mean educate by beating them up. I'm serious. I don't think they know.

Why you think they seem to be more involved? Any thoughts?

BTW. I did apologize to you last week. []

I didn't mean beat them up, just educate them with well compose sentences, like we post or write reports.

I need to check what happen last week or whenever. I done forgot whatever that was.

Marc

[hausdok]

Could you quote statute and section on that Mike? I'd like to look it up.

Marc

Sure, but it all depends on your contract and how your contract is worded and you must make the client aware of the restrictions on usage.

The third party liability clause in my contract states:

Third Party Liability - The inspection is done for You and the report is prepared for You, for Your own information, and is copyrighted. The report may not be used or relied upon by any other person unless that person is specifically named by Us in this Agreement as a beneficiary of the report, in which case the report may also be used by the additional beneficiary. We have named. You agree to maintain the confidentiality of the report and reasonably protect the report from distribution to any other person. If you directly or indirectly cause the report to be distributed to any other person, You agree to indemnify, defend and hold Us harmless if any third party brings a claim against US related to our inspection or the report. By initialing here ____, You authorize us to distribute copies of the Inspection results to the real estate agent(s) and /or mortgage company directly involved in this transaction, who are not designated beneficiaries of the report, intended or otherwise.

There is no question that I restrict the user's right to redistribute the report or allow others to use it.

Here's a summation of copyright ownership from BitLaw.com

Copyright Ownership

Executive summary:

One of the most important concerns in copyright law is the determination of copyright ownership. The general rule is that the creator of the work is the owner of all copyright interests in the work. However, where two or more parties create a work together, copyright ownership becomes a more difficult issue. In addition, copyright ownership is more difficult to determine when the creator of a work is being paid by a third-party to create the work.

This section of BitLaw explains these issues in more detail in the sections below:

-joint authorship;

-works made for hire--the standard; and

-works made for hire--the importance of the determination; and

-example: ownership of software programs

Works Made for Hire--The Standard:

In a work made for hire situation, the "author" of the work is no longer the individual who created the work. Instead, the "author" is considered to be the entity which hired the actual creators of the work (such as a corporation for whom the author works as an employee).

The Copyright Act limits the work made for hire doctrine to two specific situations:

1.a work prepared by an employee within the scope of his or her employment; or

2.a work specially ordered or commissioned for use #9702;as a contribution to a collective work,

-as a part of a motion picture or other audiovisual work,

-as a translation,

-as a supplementary work,

-as a compilation,

-as an instructional text,

-as a test,

-as answer material for a test,

-or as an atlas,

but even then only if the parties agree in writing that the work is a work made for hire.

The first situation applies only when the work's creator is an employee and not an independent contractor. The determination of whether an individual is an employee for the purposes of the work made for hire doctrine is determined under "the common law of agency." What this means is that courts will look at various factors to determine whether the individual is an employee, such as:

-the control exerted by the employer over the employee (i.e., the employee's schedule and the hiring of the employee's assistants);

-the control exerted by the employer over how and where the work is done;

-the supplying of equipment for the employee's use; and

-the payment of benefits and the withholding of taxes.

Although these factors are not exhaustive and can be difficult to analyze in close situations, it is clear that a work created within the scope of a regular, salaried employee's job is a work made for hire. Typical examples of works made for hire would include a software program created by an employee programmer, or the ad copy created by a marketing department employee.

If a work is created by an independent contractor (that is, someone who is not an employee), the work may still be a work for hire, but the definition is much harder to meet. In order for the work of an independent contractor to be a work made for hire, the following facts must exist:

-the work must be specially ordered or commissioned;

-the work must come within one of the nine categories of works listed in the definition above; and

-there must be a written agreement between the parties specifying that the work is a work made for hire.

Works Made For Hire--why is it Important?:

The determination of whether a particular work is a work made for hire can be crucial to the hiring party's ability to utilize the created work. If a work is considered a work made for hire, the author and owner of the work is the hiring party. If the work is not a work made for hire, the hiring party has no copyright ownership in the work. The hiring party's ability to use the work would therefore depend either on the specific terms of its agreement with the author, or upon the concept of an implied license to use the work (see the BitLaw discussion on implied licenses for more information on this topic). If forced to rely on an implied license, the hiring party may find that it has only limited rights to alter, update, or transform the work for which it paid.

In addition, the determination of whether a work is a work made for hire affects the ability of a creator of a work to invoke her right to terminate the transfer of rights, which would otherwise affect a license or assignment (for more information, see the BitLaw discussion on the termination of transfers).

There is no question that my work is not work made for hire because I have clearly informed the client that it is restricted and he/she must agree to that by contract.

Now go here to learn about a case where an appraiser won a case against someone for using his copyrighted material.

Here's the applicable paragraph under our home inspection laws:

308-408C-020 (10) WAC The home inspector must not disclose information contained in the inspection report without client approval or as required by law. However, at their discretion inspectors may disclose, when practical, observed safety or health hazards to occupants or others that are exposed to such hazards.

I could continue and provide citations from our state's Uniform Regulation of Businesses and Professions Act - but all it would do is affirm the Directors authority to discipline an inspector or suspend his/her license for breaking applicable laws and it would explain that it encompasses Chapter 18.280 RCW (Home Inspectors) which the WAC falls under.

So, bottom line; restrict 'em by contract, state in the contract that the report is copyrighted and explain the restrictions and always, always aggressively enforce your copyright whenever you learn that it's been violated.

A couple of months ago I did a pre-offer inspection for a guy. He walked. About three weeks ago I got a call from a different guy,

Caller: "Hi Mike, this is so-and-so. I bought the house located at XXXX and I have some questions about the report."

Me: (I didn't recognize the name so I asked him) "Are you a client of mine?"

Caller: "No," he answered, "But I bought that house at XXXX. They provided me a copy of your report and I have some questions."

Me: I'm sorry sir. They had no right to give you a copy of that report. The report is a copyrighted product and my intellectual property. The client signed a contract that spelled out in no uncertain terms that he was only allowed to use the report for his transaction and that contract specifically prohibits distribution to anyone that I don't authorize the report to be distributed to. I therefore will not discuss it and, as the copyright holder, I want you to destroy the report immediately. If you want to be able to rely on a report of mine for that house, you can hire me, I'll come out to the house, you can enter into the same contract the other guy agreed to, I'll perform another complete inspection, write another report and you can pay me for my work.

Caller: That's crazy, why would I want to pay you to inspect the house and write another report when I have a free copy.

Me: Because you have an illegal copy of the report, Sir. Sir, do you work for Microsoft? (I suspected as much because of his accent and the proximity of the house to the Microsoft campus.)

Caller: Yes, I do.

Me; Well Sir, if I bought a copy of Windows 8 I'd be entitled to put it on my computer and one other computer here at home, right?

Caller: Yes.

Me: Would I also be allowed to send that software to my mother in Florida so she could install it on her computer? Could I sell a copy of the disc to my buddy down the street for less than I paid for it?

Caller: Well, no, because it's copyrighted. We don't allow consumers to do that.

Me: Neither do I, Sir. Destroy the report, Sir. You haven't paid me for it and you are violating my copyright.

He hung up. A week later the original client - an old client who I'd done about five houses for over the course of 7 years - called me for another inspection. When I showed up and we went over the contract I paused to say that I was disappointed that after so many inspections and so many times hearing me explain the terms of the contract, he'd violated my copyright. He was like, "What, what do you mean?" I explained. He and his agent had a few words in private and afterward the agent apologized till she was blue in the face. She assured me it wasn't my clients fault (I'd never thought it was.) that it must have been the listing agent, and that she would be reading the riot act to the listing agent and the listing agent's broker.

We'll see. If that buyer ever tries to take me to court in subrogation I'm going to be counter suing someone for violation of the terms of my copyright.

ONE TEAM - ONE FIGHT!!!

Mike

[mlparham]

The sneaky part is now the agent and client will want you to write in a slippery way and not really say anything.

I had a client, an agent, and a banker, badgering me last year, to bless off a foundation repair made to keep water from entering the basement.

The client had somehow been allowed to bandaid the inside of the wall with concrete, himself.

The repair was of course, not what was needed to be done, there was still water coming in and I ended up in the middle of an Email war where I explained if the bank was interested in hiring my opinion of the repairs made, they could do so in a business like manor, sign a contract, and cut me check. Until then, they would not receive anything from me.

I was told they ended up calling an I'll do anything for a buck guy, and he put his ass in the sling.

I have also heard a similar story from another inspector who had a bank contact him about giving his ok in writing about the structural stability of a bowed interior wall he had written about in his report.

I think the banks are starting to look at using us for some sort of added assurance they're making a good investment. Remember, these folks, at least around here, have barely had a clue or ever cared about the role we play in the course of a transaction. I know it makes no sense when they have appraisers they pay, but there must be a reason behind this.

Maybe they're starting to understand the value of what we do and they see that the less money someone has to put into a broken down shack, the easier it is to pay the mortgage. Even if they plan to sell the paper, later.

I don't think they understand our limitations. Maybe it's time for this profession to direct some education toward them.

Then again, Maybe this is just another one of my crazy ideas, like when I mentioned Facebook a few years back, and got laughed at and told it was for kids.

I'm with you man. I always thought QuickFace and YouToo were for kids.

[Tom Raymond]

Silly rabit, Trix are for kids. I won't let my kids near facebook.

[Garet]

She assured me it wasn't my clients fault (I'd never thought it was.) that it must have been the listing agent, and that she would be reading the riot act to the listing agent and the listing agent's broker.

But... the listing agent is legally obligated to disclose any known defects. Once the listing agent has your report one could argue that they HAVE to hand it over to future buyers.

[hausdok]

You completely missed it Garet. They weren't allowed to transfer the report to the listing agent. They can inform the agent and the agent has the knowledge. They don't get to take the entire report and turn it over to someone else. That's like passing on blackmarket CD's.

All the buyer's agent had to say was, "We're backing out of the deal because of such and such," and the listing agent would have known about the defects and been obligated to pass that on to the next buyer coming on and then that person's inspector could verify it.

ONE TEAM - ONE FIGHT!!!

Mike

[kurt]

Anyone can have my report, distribution is the responsibility of the owner, my customer. Shit gets in a fan, it's (the report) going everywhere anyway. I've got better things to do than attempt enforcing the unenforceable.

My single fear is the subrogation component. I think that's coming. We will all have to learn to write "subrogation proof" report language.

[Charlie R]

I know some lenders here in Maryland have been requiring they get a copy of the inspection report for years, and then they dictate what needs to be repaired. The clients usually call me for a reinspection because the lender wants something from me saying the items have been repaired. I charge for the reinspection, give my client a reinspection report. Some lenders provide their own version of an inspection form and want me to fill that out. I do, but I charge for that and write on their form that I don't accept any liability for anything because it's their form.

[Marc]

All the buyer's agent had to say was, "We're backing out of the deal because of such and such," and the listing agent would have known about the defects and been obligated to pass that on to the next buyer coming on and then that person's inspector could verify it.

ONE TEAM - ONE FIGHT!!!

Mike

I don't see how the listing agent is obligated. It's the seller that's obligated, if and when he becomes aware of it.

Besides, the findings of a report aren't facts, they're opinions. If a seller doesn't agree with a finding of a report, he doesn't have to disclose it to the next buyer.

Marc

[MMustola]

I do the same as Les. I recommend that the client not give the report to the lender. Since there is no requirement to have an inspection I tell the client to tell the lender they didn't have one. If the Lender wants to know the condition of the property they should hire their own inspector.

The only times of have heard about lenders asking for the report around here is for FHA Mortgages.

[gtblum]

I know some lenders here in Maryland have been requiring they get a copy of the inspection report for years, and then they dictate what needs to be repaired. The clients usually call me for a reinspection because the lender wants something from me saying the items have been repaired. I charge for the reinspection, give my client a reinspection report. Some lenders provide their own version of an inspection form and want me to fill that out. I do, but I charge for that and write on their form that I don't accept any liability for anything because it's their form.

This is where I have a problem. Everyone in this business has a contract they spent time and money on to hopefully make it as bullet proof as possible. Everyone has a limitation of liability that goes into some detail about responsibility ending with their client.

Why would you without a contract of any kind, allow yourself to be put into a position of liability to a bank for repairs made by contractor who's warranty of the repair should serve to satisfy their concern?

I spoke with my attorney about this and was told I would have been out of my mind to put myself in that position.

just educate them with well compose sentences

Silly rabit, Trix are for kids.

If we're done with english class, you might want to check with your attorney.

[kurt]

There is no way in blue blazes I would ever fill out a bank form, except for a draw inspection.

If the lender wants to do business with me, they can do business with me on my terms.

[Tom Raymond]

Blum, would you prefer rabbet?

I didn't realize typos were a job hazard in this gig.