HML and Cash offer

[Danielle Desaulniers]

Hi everyone,

My question is this: I am in the process of purchasing an REO (my first one), we told the bank it is a cash offer but the money is coming from the HML. Is that really a cash offer?
Also, the bank wants $4000 in earnest money and only a 7 day inspection period (that's 7 calender days not business days). Is this normal? I think i am going to accept, thinking that if the HML doesn't offer enough money for the purchase I will get my earnest money back by using the inspection report to back out of the deal. Is this really ok?
Thanks for you advice (in advance)

[Jon Holdman]

Are you worried the selling bank will find out you're using a loan and back out of the deal? Possible, but probably not likely. As loan as you stick to the terms of the contract, the probably won't care.

Every loan in a real estate transaction is between the buyer and their lender. The seller's not directly involved. The seller cares, though, because without the lender's approval, the deal won't close. That's usually part of the contract because the contract states the deal is contingent on getting financing in such and such amount at such and such terms. There is a loan conditions deadline, and if the loan cannot be finalized by that deadline, the buyer's can back out and get the EM back. So, the lender is of concern to the seller, even though the seller isn't directly involved with the lender.

In your case, the contract states its an all case deal. That makes your offer stronger, because there are no contingencies related to the loan. If the inspection deadline passes, and you don't object, you are not getting your EM back. If the HML later decides to not fund the loan for any reason, and you can't close the deal, the selling bank will keep your EM. Any seller would do the same.

If you do the inspection, and find nothing wrong (unlikely), then you will have no basis for objection. If you find something obviously wrong, the bank may point out that the contract says the purchase is "as is" and it was obvious it had the problem. You'll have to discover something non-obvious (hidden mold, plumbing problems not noticeable in a walk through, roof problems, etc.) and use that for your baseis of objection. Even then, the seller may come back and say "OK, we'll drop the price by XX to cover the cost to fix the problem."

The fundamental problem here is that you're dependent on the HML coming through with the loan in order to close on the deal. If they don't, you can't close. Yet your contract gives you no ability to back out if the HML fails to come through with the loan. Assuming the contract says "liquidated damages" and not "specific performance", then the bank will simply keep your earnest money and end the contract. That's the risk your taking by making an "all cash" contract when you really have to get a loan.