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buying a home, watch our for contingency releases

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Herb Schmulewicz, "Schmulewicz"
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Herb Schmulewicz, "Schmulewicz"

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The buyer at some point will be asked to sign-off on the loan contingency release. In today's market there is risk in doing so. If the lender goes out of business and you don't close escrow on time, the buyer can lose the intial deposit. Liquidated Damages clause. Yup. it's contract law.

You can select or add an option, so that the release is protected by actual funding. Be careful, a buyer can lose money.. and the reality is the seller takes a big loss too. Be careful

Herb - Realtor
(650)784-1849

August 31 2007 - US

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Lindsayanng
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can you explain to those of us who are real estate stupid what a Loan Contingency Release is and when does it pop up in the home buying process?

August 31 2007

Daniel, "Dan_2007"
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Daniel, "Dan_2007"

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ditto...

August 31 2007

Alan May
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a loan contingency states "the buyer will buy the property but ONLY if he actually gets the loan... the seller will give me XXdays (usually 30) to obtain a firm "mortgage committment from my lender)"

"signing-off" on that contingency basically means... "dropping it"... which means you've been able to truly obtain that loan, by getting a mortgage committment letter from your lender, stating that if you were to close today... they've done all their research, and proctoscopic exam of your finances, and are prepared to fund (give you the money)!

The danger that Herb is talking about is "real". In today's market... the mortgage committment, depending on the lender, may not be worth the paper it's written on. Most committments contain just enough language that allows the lender "out", if they want to... and of course if they go out of business... it's that famous creek, without the paddle.

September 04 2007

ghennis00
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LOL, alot of things "may not be worth the paper it's written on."

September 04 2007

Nic Netherton, "ColoradoLender"
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Nic Netherton, "ColoradoLender"

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There is a slight distinction to be made between a pre-qualification and a loan commitment. The escape verbage is actually made so non-commital to protect the buyer so he has an "out" within the contract in the event that he no longer wants to follow the contact. That way can recoup the earnest money without penalty. Just a different perspective

September 04 2007

Alan May
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actually there are three levels

Prequalification =
... the lender has talked to you on the phone, and based on the information they received from the conversation... If your income / debts are really what you say they are... then you'd be approved for a loan.

Preapproval =
... same as the above PLUS, they've done employment verification, asset verification, income verification and pulled your credit... and based on those you'd be approved.

Committment =
... same as preapproval, but now all of the lenders "due-diligence" has been completed, and they're ready to fund, all they want now is "survey, and clear title"... and they usually thrown in a vague "escape clause"...

September 04 2007

Nic Netherton, "ColoradoLender"
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the title and survey would be completed as well before a full loan commitment would be issued FYI...

September 04 2007

Alan May
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not in Illinois...

committment is issued, leaving those two items as "contingencies" to the committment.

September 04 2007

CORONA NICK
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How about in CA>?? Thanks for the info Herb... good to see there are agents that look after the buyers....

September 04 2007

Marci Reinheimer
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Marci Reinheimer

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It depends on what is agreed to in the contract. As a seller's agent, I would want that contingency removed very soon after the contract is signed (within 10 days). As a buyer's agent, I wouldn't remove it until I was slapped with a 24 hour notice to perform.

September 04 2007

Dave Kelly, "4re.biz"
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Herb is wise to recommend that the loan contingency remain until funded. That protects the buyer. In the California Residential Purchase Agreement on page one, paragraph 2, I, you will see a checkbox. As a buyer, you want that box checked that says "the loan contingency shall remain in effect until the designated loans are funded.

September 04 2007

Marci Reinheimer
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and if the seller accepted that, count your blessings, because the seller's agent isn't looking out for the seller whatsoever.

September 04 2007

Lisa Jones, "Lisa Jonz"
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Lisa Jones, "Lisa Jonz"

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When you are representing the buyer, yes, the 30 day "commitment clause" is all well and good but an alert listing agent would not go for the 30 days. We all know we only want qualified buyers making offers and if I represented the seller in the deal I would not give the buyer 30 days to secure funding (s)he should already have. I don't know what lender's going to go out of business next (if any), but I do know that if I am representing the seller in the transaction that I'm not giving buyers 30 days to secure funding the buyer's agent should have confirmed was already at least pre-approved before taking them to look at any houses; not just mine. Part of an buyer's agents job is making sure buyers are qualified to purchase Before taking them looking for property. It's out of everyone's control if the lender goes out of business, but I guess that could be all the more reason to make sure that funding is as secure as can be ASAP.

The FL FAR/BAR sales contract does not have a paragraph 2, I, but if it did and I represented the Seller, then I would not let that little box stay checked.

Again, if I represent the buyer, yeah, I'd go for the 30 days just to cover my client's a$$ just in case.

September 04 2007

C_French
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Good post, Herb. When representing a seller I ask for a pre-approval letter from the bank once we have an accepted offer, that is if the Buyer's Agent did not send one over with the offer. I always have a financing contingency that needs to be removed within 21 days. Meaning inspections are done, appraisal has been done, title is clear and we are ready to close. What scares me is when the loan officer ask what is a letter of full commital. Definitely a red flag.

September 04 2007

Alan May
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...and here, I ask for that pre-approval letter BEFORE we sign the accepted offer. We don't typically even negotiate, 'till we know that the buyer is a bona fide buyer... meaning that s/he has the money.

Why negotiate with someone who hasn't the werewithall to purchase the house... then all we've done is to tell someone out there in the market what our bottom line truly is.

September 04 2007

C_French
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Elvis, I mean Almay :) You are so right.

It is common practice here to get the pre-approval letter with the offer. If it doesn't come with the offer I ask the agent if the buyer is indeed pre-approved, and if so, with what bank. This is before we enter into negotiations.

I make it a common practice to include a pre-approval letter with any offers I submit this way the listing agent and seller know that my buyer is pre-approved and is serious.

September 05 2007

Alan May
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(deep baritone)

that's allright now baby..., er I mean C_French...

September 05 2007

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