The arrangement, discouraged by banks and real estate agents, lets potential owners occupy a home pending the final sale.
The father and three children who perished in the Orriginton fire last weekend were living in the house under an unusual arrangement that is discouraged in the real estate industry, according to several real estate agents who are familiar with sales of financially distressed properties.
Benjamin Johnson III, 30, and his three young children died Saturday in a firethat was ignited by cardboard boxes placed too close to a wood stove. The mother, Christine Johnson, 31, was rescued from the roof by firefighters.
Investigators said they found one smoke detector in the house, but it had no battery. The state Fire Marshal’s Office and the Orrington code enforcement officer said Wednesday that there were no code violations in the house and that there was no legal requirement for the home to have a working smoke detector.
Real estate agents said the housing arrangement – which allowed the Johnsons to live in the house rent-free for months until the sale was completed – is discouraged because it poses financial risks to all parties. At the same time, no one has suggested that the broker, the bank or the owners were in any way liable for the tragedy.
The Johnson family planned to buy the two-story Cape and were waiting for the sale to close. They were heating the house with a wood stove because the pipes for the hot water heating system had been broken while the house was vacant last winter. They planned to replace the system once the sale was finalized, giving them access to the bank loan they were using for the house purchase, according to the real estate agent who worked on the deal.
The house was being sold as a “short sale,” meaning it was being sold for a price that is lower than the principal owed on the loan. Banks often prefer to sell a property at a loss rather force the owner into foreclosure because they typically end up with more money.
The house’s owners, John Costello and Heather Bemis, had moved out in May 2011. The Johnsons moved into the house in March 2012 after they received approval for financing and a purchase-and-sale agreement was signed, said Philip Cormier, the real estate agent who worked for the Johnsons.
Short sales can take many months to complete. At the time, the Johnsons were living in a cramped mobile home in Brewer with a leaking roof.
Cormier said he encouraged the Johnsons to consider moving in while the bank was processing the sale, and that Costello and Bemis agreed to let the family live in the house because a vacant house is an easy target for vandals and copper thieves looking to steal pipes.
Cormier said he warned Benjamin Johnson a couple of weeks ago that the house was not designed to be adequately heated by a wood stove and that the deal would not close for another two months. Cormier said he suggested that Johnson buy a direct-vent heater.
JPMorgan Chase Bank, which held the mortgage for the home, was not aware that Costello and Bemis had allowed another family to live in the house, said Melissa Shuffield, a spokeswoman for the bank.
Several real estate agents who are experienced in short sales in Maine said that agents and banks typically discourage the practice because it creates too much financial risk for all parities.
“It’s really not how it’s done,” said Marty Macisso, a short sale specialist at the Regency Reality Group in South Portland. “It becomes a liability for the owner and the bank.”
Moreover, a buyer who invests money in upgrading a house before the short sale is finalized could lose the investment if the deal falls through, Macisso said.