In the otherwise delightful dinner party that is real estate transactions, Title V is like the rude guy who
drinks too much and keeps telling you how much money he made last year. We all know we have to
deal with it, so let’s get the inspection over with. Sometimes it’s fine; sometimes it’s not.
However, when the inspection isn’t fine and the system doesn’t pass, there are some options.
A holdback is one such option. In this case, a holdback happens when a Title V system fails, the lender
and all parties agrees to move forward with the closing, but a portion of the Seller’s proceeds are held
aside while the necessary repairs are performed for a passing Title V certificate to be issued.
Here are the standard elements of a title v holdback.
What is needed: A septic plan, approved by the town
Whose money is being held: The seller
How much is being held: Lenders prefer to hold 1.5 times the cost to complete the project in escrow
When is money released: Upon issuance of a passing Title V certificate from the local Board of Health
Simple enough? Not always. This basic structure lends itself to some concerns.
What happens if the cost of the system doubles?
Is there running water while the buyer moves in?
Does the money get released PRIOR to the yard being repaired? Is there a separate holdback for the yard?
Beyond the standard elements, any holdback agreement needs to answer these questions and any other
“what-ifs” anyone can come up with.
There are no hard and fast rules to this set of questions, so these should be worked through between
the parties. Keep in mind that when writing these agreements, it’s not enough to have them be
understood, write them so they can’t be misunderstood. If you have a property with septic concerns,
and you anticipate this kind of agreement; it’s okay, call me.
