What's the difference between a home inspection and a property inspection?

When a homeowner defaults on the mortgage or goes into foreclosure, the servicer will probably order property inspections.

By , Attorney · University of Denver Sturm College of Law

If you default on your mortgage payments, your loan servicer might order monthly or weekly property inspections. This kind of inspection differs from the home inspection completed when you bought the property.

Keep reading to learn the difference between a home inspection connected with the purchase of a property and inspections completed in connection with a foreclosure.

What Is a Home Inspection?

A home inspection is often performed as part of the process of buying a property. A licensed home inspector usually conducts the inspection.

This type of inspection normally includes a review of the condition of the home's:

  • heating system
  • air conditioning system
  • water heater
  • interior plumbing
  • electrical system
  • walls
  • ceilings
  • floors
  • attic
  • roof
  • windows
  • foundation, and
  • basement.

Many home inspectors also offer additional services, such as testing for mold, radon, and water quality, and performing energy audits.

Following the home inspection, the inspector prepares and delivers a written report of findings to the prospective purchaser, who then uses the report to decide whether to buy the property. The cost of a home inspection is ordinarily several hundred dollars.

What Is a Default Inspection?

On the other hand, a property inspection (sometimes called a "default inspection") is generally performed after a mortgage loan goes into default.

If a loan goes into default, most mortgage and deed of trust contracts give the lender the right to take necessary steps to protect the property's value and the lender's rights in the property. So, if you're late on your payments or violate the agreement's terms in some other way, your loan contract most likely allows the loan servicer (on behalf of the lender) to hire someone to conduct property inspections.

The servicer usually hires a field services company to conduct the inspections. Inspections are typically ordered automatically once the loan goes into default.

What Default Inspections Review

After a default, the lender wants to know whether the property is occupied and being appropriately maintained. So, this type of inspection generally looks at the following:

  • the home's general condition
  • the condition of the yard, pool, and any detached structures
  • whether waste, deterioration, or vandalism is present
  • the occupancy status
  • whether utilities are connected and turned on
  • whether the property has been abandoned
  • if obvious environmental hazards exist
  • whether the property has deferred maintenance (meaning, is it in need of repairs), and
  • whether the property needs asset preservation (that is, does the servicer need to hire someone to make repairs, change the locks, board up the windows, etc.)

What Is the Purpose of a Property Inspection?

Properties that are in foreclosure, especially if they're unoccupied, can often suffer damage from things such as:

  • vandals or thieves
  • improper winterization, and
  • storm damage.

Routine inspections allow the lender and loan servicer to keep tabs on the property's condition and see whether the home is occupied.

Manner and Cost of Property Inspections

The property inspection will generally be a drive-by inspection. (A home inspection is much more in-depth than a default inspection.)

The amount charged for each property inspection is typically minimal, costing around $10 to $20. The charges for the inspections are then added to the total mortgage debt. But because inspections are ordinarily performed monthly or more often, the charges can add up quickly to several hundred dollars or more.

Some courts have found that repeated inspections aren't necessary when the loan servicer is in contact with the homeowner, knows the property is occupied, and has no reason to be concerned about the property's condition.

Fannie Mae's servicing guidelines, for example, say the servicer must order property inspections for a delinquent mortgage loan unless the servicer is in contact with the borrower and the borrower is trying to resolve the delinquency or is in Chapter 13 bankruptcy and performing under the bankruptcy plan. (Many investors, including Fannie Mae, Freddie Mac, FHA, VA, and USDA, require property inspections under certain circumstances.)

Talk to a Foreclosure Attorney

In some cases, you might be able to challenge the fees charged for property inspections as part of a foreclosure defense. For example, if the field services company inspected the wrong property or didn't actually inspect the property as many times as it claims.

If you're facing a foreclosure and want to learn more about the process, including your rights during the process and whether you have any defenses to the foreclosure, consider talking to an attorney.

Talk to a Foreclosure attorney.
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