The father and three children who perished in the Orrington 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.
William Johnson III, 30, and his three young children died Saturday in a fire that 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 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 Johnsons 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 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 final, 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 than 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 compete. 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 Bermis 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.
He said the parties signed an agreement that gave the Johnsons permission to live in the house without any rent until the sale was complete.
“It was a win-win for everything to help everyone involved,” Cormier said.
Cormier said he warned Ben Johnson a couple of weeks ago that the house was not designed to be heated adequately 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 its 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 bcomes a liability for the owner and the bank.”
Even though the bank, seller and buyer have agreed to a price, the bank still can reject the deal until the last moment, Macisso said. If that happens, the seller may have an angry tenant who may not want to leave or allow the house to be shown to other potential buyers, he said.
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.
Danni O’Halloran, a real estate agent in Bangor, said she has never had a buyer move into a house before the deal was finalized. Although vacant homes are a target for thieves and vandals, she said, banks would rather have a home vacant than occupied by the prospective buyer.
Keeping the buyers out of the house until the deal is done is “cleaner” and lowers the risk, said Derrick Buckspan of RE/MAX by the Bay in Portland.
However, while the arrangement in Orringinton is uncommon, there are situations in which such an arraignment might make sense for both parties, said James Stoneton, with Coldwell Banker American Heritage Real Estate in Bangor. He said he is seeing a lot of short sales of vacant homes that have been burglarized and stripped of materials.
“It depends on the circumstances,” he said. “In this situation, as tragic as it is, without the fire (it) may have been just the right for the buyers and sellers.”
Costello and Bemis did not respond for a request for an interview.