Finally it arrives, settlement day. The buyer and seller are excited, one to rid themselves of the property and the other to gain a new home or investment. Real estate agents have reviewed the paperwork, the walk through has been completed and any pertinent issues found have been communicated. The title company puts the finishing touches on their paperwork and awaits arrival of the lender’s package and funds. But it never arrives…
This has happened in a number of transactions near you. This past Monday a major mortgage banking lender did not honor its commitments and close its loans. It’s credit lines were dry. Today, they will layoff most of their employees and cease all loan origination. This is the nightmare that we never wanted to see. I trust you weren’t negatively impacted by this occurrence.
The real issue for the affected parties is what happens now? I posed this question to Mike Briggs, managing broker for Samson Realty. Mike said that paragraph 26 of the Regional Sales Contract typically used in Northern Virginia states that the Purchaser will be in Default, even if the financing contingency is not removed, if Settlement does not occur on the Settlement Date for any reason other than Default by the Seller. He also stated, however, that as the listing broker they would counsel their seller clients to give the buyer an opportunity to find another source of funds – provided the buyer properly documents the reason for the lack of funding. He strongly suggests that to protect themselves buyers should seek a new loan immediately.
Mr. Briggs brought another dilemma to our attention. This is the issue of short sales which apparently is happening with increasing frequency. Imagine this if you will: you must sell your house and the market price determined by an arm’s length offer from a buyer is less than the total amount due on all the mortgages. You request that one or both (as it happens to be) of the lenders take less than what they are owed, thus the “short sale”. The alternative for the lender is foreclosure which they do not want. What Mike found in a recent transaction was troublesome at best. With a bona-fide purchase offer received, the individual representing the lender who was handling the negotiation of the short sale was let go, fired, terminated – the result of cost cutting measures by the lender. Essentially, the process has to start over again.
Now, imagine being the seller and their level of frustration. Then imagine being the buyer who is trying to get into their new home before school starts, their new job commences or their moving truck arrives. It’s not pretty and, in many such cases, the buyer will throw in the towel and walk.
When they write the history of the real estate and mortgage markets of the early years of this current century it will no doubt be grim for some and just a passing event to others. Like all things cyclical, it too will pass. Just be sure you are now aligning your interests with a knowledgeable and experienced real estate and mortgage practitioner.