Bank won't close with tenant in house

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Bank won't close with tenant in house

Louis Cavallaro
Somerville, MA · Member since 2015 · 10 posts · 0 votes

Hey everyone, I wish I had posted in here earlier and maybe I could have avoided the below issue, but here is where I am now:

 I'm in the process of purchasing my first home, which is a duplex. Both units currently rented month to month.

I was supposed to close Nov 30th (or earlier as the seller wants), and my rate its locked in until Dec 18. My contract with the seller is good until Dec 15th.

The loan is from a local bank which hold their own notes, so I could do 15% down with no PMI and a great rate. They only do owner-occupied, not investments, which is what I want as I need a place to live anyways (at least for the first year).

Back to the current tenants that are month to month. The seller told me the first floor tenant was leaving soon, likely December but wasn't completely sure. I had thought, perhaps incorrectly from google searches, that I had 30-60 days before I needed to occupy the house and therefore remove this tenant. So I was not worried about them being in there a few weeks after I closed.

This Tuesday, Nov 3, I received a call from the bank that the underwriter is requiring a signed document that the tenant's lease will be terminated and that they will be OUT of the house BEFORE closing or they will not transfer title. 

Now if they told me this two days earlier I could have had the seller give the tenant 30 days. Their lease agreement is a 30 day notice on or before the monthly renewal/rent date. So now a 30 day notice does not start until Dec 1 even if given today, having them out by Jan 1. (Plus tenant is an attorney).

My realtor has contacted the listing agent to see what they can work out but its been two days and the listing agent has not gotten back to getting a bit nervous. 

Possible solutions:

*Tenant/seller sign to have tenant leave by Jan 1 and take that to the underwriter in hopes that will satisfy requirement and let me close Nov 30 (loan officer says it won't likely work but that she'd deliver the document to underwriter if we did it)

*The tenant agrees to leave by the December 15 contract date, possibly with financial incentive for having to do 2 moves and possibly storing furniture if his next lease doesn't start until Jan 1

*Request to extend contract to Jan 1 with seller which they could reject, plus RESTART loan process and forfeit money into the loan so far (loan originator won't extend the date of Dec 18 even though she didn't tell us about the vacant requirement on day 1 when I applied (3 weeks ago)). 

Even if I did know the requirement on day 1, if I were the seller I would not want to terminate a lease early because if my loan fell through they'd be out rent and back at square one trying to sell the property.

Has anyone has an experience like this or have any advice or ideas on how to solve this? 

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
10y

Sorry, but this is going to be an example of "the school of hard knocks".  Consider the extra money you're going to have to pay to be the tuition.

You say:

and

Yet you were working with a specific lender that you KNEW would only do the loan as OO. You should have asked them EXACTLY when you needed to move in. They would have given you the correct answer where you google searching gave you the wrong one. You say if they had told you two days earlier that you would have done something different. Yet you knew from the start you were getting an OO loan. Fundamentally your mistake is in making assumptions instead of asking specific questions. The error is yours, not the lender's. They may not have been specific about the vacancy requirement, but you knew about the OO requirement and that you were buying a fully occupied property. You could have asked THE LENDER and received the correct answer instead of googling and finding the wrong answer. Live and learn. NEVER ASSUME.

At this point I would offer the seller and tenant a financial incentive to be out before closing.  The tenant would still have almost 40 days to be out.   Offer them, say, one months rent or their full security deposit refunded right at move out.   Compare that cost to the cost of restarting the process and between you and the seller, I suspect you can come up with enough cash to make that happen.

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    So sorry you're in the soup on this. It would seem that the bank is being overreaching on this, but it was owner occupied and they're making it stick.  As a duplex, they should (imo) allow one existing  tenant and insist on your occupancy.


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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    10y

    Sorry, but this is going to be an example of "the school of hard knocks".  Consider the extra money you're going to have to pay to be the tuition.

    You say:

    and

    Yet you were working with a specific lender that you KNEW would only do the loan as OO. You should have asked them EXACTLY when you needed to move in. They would have given you the correct answer where you google searching gave you the wrong one. You say if they had told you two days earlier that you would have done something different. Yet you knew from the start you were getting an OO loan. Fundamentally your mistake is in making assumptions instead of asking specific questions. The error is yours, not the lender's. They may not have been specific about the vacancy requirement, but you knew about the OO requirement and that you were buying a fully occupied property. You could have asked THE LENDER and received the correct answer instead of googling and finding the wrong answer. Live and learn. NEVER ASSUME.

    At this point I would offer the seller and tenant a financial incentive to be out before closing.  The tenant would still have almost 40 days to be out.   Offer them, say, one months rent or their full security deposit refunded right at move out.   Compare that cost to the cost of restarting the process and between you and the seller, I suspect you can come up with enough cash to make that happen.

    1Reply
  • Kevin Harrison
    Investor · Woodbridge, VA · Member since 2015 · 476 posts · 197 votes
    10y

    If this was me and this truly a small local bank you are dealing with, I would set an appointment to see the loan officer or VP or whomever and go down there to talk to them in person. It is much eaiser for them to tell you no and stick to some absurd rules when you are playing telephone tag or in an e-mail as opposed to when you go and talk to them face to face, with a good attitude and common sense on your side.

    At the very least it will let you put a face to the name and company and do the same for the bank which might make them more likely to be lenient in their lending with a KNOWN person and not just some guy on the phone wanting to borrow money.

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