Buying a Home? Loan Contingency Strategied in the Current Market.
Beverly Hills Real Estate, Beverly Hills Real Estate Listings.
www.ChristopheChoo.com
Loan Contingency Strategies in the Current Market
posted Jan 8, 2010 2:43 PM by Kathy Mehringer, Risk Management Director [ updated Jan 15, 2010 7:16 PM ] As the market continues to move under our feet, loan availability remains uncertain. The new Federal Lending Regulations impacting the purchase of primary residences and second homes in many cases will alter the timing of our transactions. The Home Valuation Code of Conduct and other appraisal challenges impact our transactions in a large way.
We are now afforded an opportunity to take a hard look at how the loan contingency and removal process is handled in our transactions. Clearly this is the time to assess the way we conduct business and adjust our practices, where necessary to adapt to the current trends.
The Loan Contingency: As you know, paragraph 2. I. Loan Contingency Removal states: “(i) Within 17 (or specified time) days after acceptance, Buyer shall, as specified in paragraph 14, remove the loan contingency or cancel this agreement; OR (ii) (checked) __ the loan contingency shall remain in effect until the designated loans are funded.”
In the past, for the most part, the time period for removal of the loan contingency has been set at the 17 day default period. Although, some Buyers modify the default period making the window of time longer or shorter depending on their personal circumstances. Current market conditions necessitate a re-examination of the process and suggest, at the very least that we consider alternatives.
From a listing agent’s perspective, the need for seller counseling regarding this issue is of paramount importance. Not only does it set forth our value as knowledgeable professionals, it prevents failed expectations and misunderstandings during the transaction. The seller must understand what factors are weighed by Buyers in the decision-making process and how those decisions affect the Seller. In addition to counseling, listing agents must be diligent in the review of offers that are presented on our listings. I say this because, especially when using WINForms, it is easy to miss the little check mark in the box at the very end of the last sentence in 2 I; when that box is checked the loan contingency does not have to be removed until the loan has actually funded. The consequences to the seller are serious, and must be explained thoroughly at the time the offer is negotiated.
Now let’s look at this from a Buyer’s point of view. Would a reasonable buyer be comfortable, based on current loan availability and challenges, removing his/her loan contingency on day 17? Or at any time prior to actually knowing the loan was funded and that the appraisal process was complete. It is our responsibility to thoroughly review options and articulate the benefits and/or risks.
Please realize that I am not advocating a position, simply pointing out the need to counsel our clients, both Buyers and Sellers, competently and carefully as to the this highly charged component of the contract negotiations.
Most Buyers and Sellers would agree that a transaction should be fair and equitable to all parties; to that end we must truly fulfill our role as trusted advisors. Our responsibility is to point out the choices, articulate the pros and cons of eachand then permit our clients to make the final decision.
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