What Happened to Loan Approval or Loan Commitment?
What does the Loan Conditions Deadline really mean?
By that deadline date the buyer needs to be satisfied that the loan is ok with the buyer. Specifically “Contract is conditional upon Buyer determining, in Buyer’s subjective discretion, that the availability, terms, conditions, and cost of such New Loan are satisfactory to Buyer”. By that date, if the buyer does not like the loan, they must deliver “written notice to seller to terminate the contract” and they are out.
How about a phone call? Will that work?
No, phone calls, attempted amend/extends for more time, do not work. It must be written notice as provided in the contract. It is obviously incumbent upon the buyer to make sure that this notice gets there on time. [This firm has a form for that notice and other notices to seller, used by those that utilize the forms package we provide. Check with your Employing Broker to see if you have that available to you.] If seller does not get the notice, the condition is waived and the earnest money, for this section, is non-refundable (gone). Loan Conditions Deadline is the date by which the buyer needs to decide if the loan is ok with the buyer, that is all.
Could I send over an amend/extend and add in some stuff?
Yes. It could indicate that if the seller does not sign the amend/extend “consider this as notice….” Might be a good idea to run that by someone to make sure the wording fits the exact circumstances.
What if the seller does not return the earnest money?
The contract provides for an attempt at mediation (30 days), and then suit. If a suit was needed for a failure to return the earnest money by the seller, after compliance with the proper timely notice provisions by the buyer, I think that the seller would be foolish. Remember the contract has a winner takes all attorneys fees paragraph. If that notice is properly delivered and “there was something not to like”, I think that the buyer wins and if I were the judge I would not be a happy camper regarding the actions of the seller.
So do I need a loan commitment prior to giving the notice?
I suggest, as Fran Winston put it so well a few years ago, that “you got to have something not to like”. Just as with the insurance section or the inspection notice section, you need to have something that you don’t like. A written loan commitment would work real well. If push comes to shove (attorney talk for litigation) then the buyer would be well served if the buyer had an email or letter from the lender with the proposed terms of the loan or denying the loan, that the buyer did not like in buyer’s subjective discretion.
What if the lender says “ok” but the loan is not there at closing?
One of the things that the REALTOR® does so well is to encourage the buyer to use a real lender that can and will perform if they say they will. This area is very risky in Colorado as the contract is not conditional upon a loan commitment or loan approval. So, if the lender does not perform the buyer runs a risk of losing their earnest money. In some parts of the state, sellers select specific performance, now the buyer risks the earnest money and damages. REALTORS® encourage buyers to make application prior to looking at houses and to use lenders that are properly licensed (or federal lenders) in Colorado. Be wary of lenders that are not located in Colorado, they are not easily subject to action by the Colorado Real Estate Commission who regulates lenders.
Is the lender part of the Contract then?
No, the lender’s relationship is with the buyer. The conditions deadline has nothing to do with the lender giving any sort of approval to the loan or appraisal or anything else. It is the lender telling the buyer that the lender will make a loan to the buyer on terms that the buyer and lender agree upon (rate, term, prepayment, adjustable).
Can a seller specify a particular lender to enhance the chances that the loan will fund?
Yes, as long as there are not other circumstances that are not properly disclosed. That is one reason why some new home sellers pressure a buyer to use the “approved” home seller’s lender. This makes the home builder/seller more certain that the lender will perform. Because if the loan does not fund, the seller also suffers.
So, the contract is not conditional upon the loan funding?
Bingo! Once the Loan Conditions Date has passed, the loan is no longer an issue that will allow the buyer to get out of the contract. Pick that lender with care.