Shady Seller - Loan Contingency removal BEFORE title is complete

37 Replies

Hi BP community, I just wanted to get the feedback and advice from investors/realtors/lenders on this forum.  I'm currently under contract to purchase a SF house in the Riverside county area.  


I was curious - what's everyone experience right now on removing loan contingencies before the close of the sale?  Is this a normal practice? I understand that when you remove all contingencies from the contract, if we do not finalize the loan on time or the lender does not fund - then the seller can keep our Ernest money.  

Background - we were searching for months in the area and continued to get beat out by multiple all cash offers that were ~$45-55K over listing price.  Many of the houses we viewed were listed for 1-2 days before locking into contract. We saw a significant increase to listing prices since Nov '20 (not surprising as this is similar in the rest of CA).

We thought we landed on a gem b/c this property had fallen out of escrow due to last buyer's inability to close the loan.  We came in with a pre-approved loan letter, half of the Ernest money as down payment.  We had a 30 day loan contingency and an estimated 40 day close (4/19) listed in the contract. We've hit our 30days today 4/10.  The seller is pushing us to remove all contingencies.  She's not being flexible and will not sign an extension. Our lender/ escrow/title is estimating ~4/16 to close.  From everyone we've talked to, it's completely normal for things to shift by a week or so and typically a seller will extend the contingency. With her past history, she won't budge.  


The seller is the listing agent.  Seller told our agent that she continued to get all cash offers much higher than ours, after we locked into contract. She kept her listings up for a week after we locked into contract and my agent's office had to push her to tag it as under contract. Our agent thinks the seller is trying to keep the Ernest money, back out of the contract, and go with the all cash offers  :(  Shady! 


Any ideas on how to handle or mitigate risks on our end? 

Thanks in advance for your advice!

Lena

@Lena Hanson my experience with loan contingencies is you never remove the contingency. By whatever day the contingency states you (the mortgage company) need to provide the seller with a commitment letter.

The commitment letter basically says that the lender plans on closing your loan. Of course anything can happen, but they’ve done the initial underwriting and everything looks good to them.

The contingency stays in place until you actually close, because who knows what might happen. But with the commitment letter, the seller should feel pretty comfortable that the loan will go through.

@Mike McCarthy thanks for your feedback Mike.  We provided the commitment letter from our lender and she is continuing to push to say that we have to remove all contingencies or cancel the contract.  In the CA RE contract, that's the standard language it states.  

As mentioned, we think she's trying to get out of the sale since she received all cash offers AFTER we locked into contract.  She's not playing fair game b/c she doesn't want to be here. 

Originally posted by @Lena Hanson :

Hi BP community, I just wanted to get the feedback and advice from investors/realtors/lenders on this forum.  I'm currently under contract to purchase a SF house in the Riverside county area.  


I was curious - what's everyone experience right now on removing loan contingencies before the close of the sale?  Is this a normal practice? I understand that when you remove all contingencies from the contract, if we do not finalize the loan on time or the lender does not fund - then the seller can keep our Ernest money.  

Background - we were searching for months in the area and continued to get beat out by multiple all cash offers that were ~$45-55K over listing price.  Many of the houses we viewed were listed for 1-2 days before locking into contract. We saw a significant increase to listing prices since Nov '20 (not surprising as this is similar in the rest of CA).

We thought we landed on a gem b/c this property had fallen out of escrow due to last buyer's inability to close the loan.  We came in with a pre-approved loan letter, half of the Ernest money as down payment.  We had a 30 day loan contingency and an estimated 40 day close (4/19) listed in the contract. We've hit our 30days today 4/10.  The seller is pushing us to remove all contingencies.  She's not being flexible and will not sign an extension. Our lender/ escrow/title is estimating ~4/16 to close.  From everyone we've talked to, it's completely normal for things to shift by a week or so and typically a seller will extend the contingency. With her past history, she won't budge.  


The seller is the listing agent.  Seller told our agent that she continued to get all cash offers much higher than ours, after we locked into contract. She kept her listings up for a week after we locked into contract and my agent's office had to push her to tag it as under contract. Our agent thinks the seller is trying to keep the Ernest money, back out of the contract, and go with the all cash offers  :(  Shady! 


Any ideas on how to handle or mitigate risks on our end? 

Thanks in advance for your advice!

Lena

I wouldn't release contingencies.  I would push your loan officer to get the job done asap.  Once you release the seller can take your earnest money deposit if the contract has expired.  If she isn't signing an extension that's even more of a red flag.  The best thing to do in this situation is to get the loan to fund.  The wire from the lender will make everyone happy ALL the time.  Push your loan officer!!!

 

@Shaun Weekes

Ughh yes so true. We are trying to hustle but realistically we are looking at 4/15-16. Improvement from 4/19 which is contractual cut off but they are working with title and escrow to go as fast as possible. Either way I’m going beyond today. Thanks for the feedback!

I agree that you should push your loan officer to get the deal done, but it's not uncommon to have contingencies expire before close of escrow. Contingencies are meant to cover your due diligence for a finite period of time before close of escrow, not to give you unlimited protection until closing the deal. Sellers need to have protection as well.

Your inability to perform is on you and your lender. If seller has higher cash offers, and is still operating within the terms of the sale agreement, then I don't see anything wrong with seller's actions. While I sincerely empathize with your situation, it seems that your lack of experience here is creating a misunderstanding of the situation. 

@Allan C.

What I appreciate most about the BP community is the support and honesty. We are posting and putting issues out there so that we can learn from one another.

Not all investors are working at the same levels and that’s why we reach out to get guidance, feedback, and share in each other’s experiences so that we can all grow.

Does your contract have a mortgage commitment date or loan contingency date on it? Can you post a picture on how your contract reads? There are different contracts in each state so I am having a tough time visualizing. In the scenario you outlined here in CT we would set up the mortgage commitment date 7-10 days in advance of the closing. 

The "loan contingency" date I am assuming is when you get your clear to close from the lender? That usually happens closer to the close date in my experience. 

In the end your contract states you will have certain things done by certain dates and any changes to the contract requires the buyer and seller to sign off on it. So the seller is not wrong in what they are doing, it is just very rare and this is basically the only situation it makes sense for the seller to do something like this. Put some pressure on your lender and let them know exactly what is at stake for you and hopefully they can come through. 

@Lena Hanson   The seller/agent is asking you to change the terms of the contract.  In response, "No" is a complete sentence.  Nothing requires you to agree to her demands.

What happens to deposits is governed by state law and the contents of the contract.  In the two states where I practiced, our standard contracts said that unless you had a loan commitment by [date 1] and closed by [date 2], the contract was void and deposits would be returned.  Unless, that is, the contract had other language.

Now put yourself in the seller / agent's shoes.  If prices are continuing to climb, she may be right that she's getting higher offers in cash.  Wouldn't you push for a way to blow up the contract?  Your job at this point is to keep an eagle eye on your obligations and dates - and to push your lender as hard as you can.

As far as leaving the listing active on MLS after it's under contract, MLS rules will most likely state that the status has to be changed within 24 hours or so. There are many MLSs across the country, each with their own rules, so that's worth looking at.

It's not much leverage, but if things get sticky you could threaten a complaint to the local MLS and to the local Board of Realtors (assuming she's a NAR member), claiming that her slowness in changing the status was unethical. That's weak sauce, but in a white-hot market you need any leverage you can get.

Good luck!

@Michael Noto

Thanks for the feedback. Here's the clause on the contract, standard for CA RE.

(3) LOAN CONTINGENCY REMOVAL:
Within 21 (or 30) Days After Acceptance, Buyer shall, as specified in paragraph 14, in writing, remove the loan contingency 
or cancel this Agreement. If there is an appraisal contingency, removal of the loan contingency shall not be deemed removal of
the appraisal contingency.

@Charlie MacPherson   I like the way you put it. I was trying to figure out where to put the pressure but from all of the feedback, I need to apply it towards the lender to fund and close quicker.  We'll ride the lender every single day multiple times a day.  They had asked for 40 days from the beginning and we're pretty much approved by underwriter and just finalizing last steps with escrow/title on closing disclosures so overall we're in a good place for the close of the loan by mid week next week which is about 3-4 days prior to contract cut off of 4/19.  

Thank you for all of your inputs! 

Your loan agent needs to contact the listing agent-seller directly when it will be funded. Then your agent can act accordingly. 

The California purchase contract has a place to remove all contingencies at the time of purchase. Almost all accepted buyers in this market click that condition. Cash or not cash matters little.  In North CA when a home has 29 offers in SFBA East Bay and seller accepted a plain looking mid 1950s >41M over asked price. No one is surprised. A 2.3M does not go far these days.

I just closed on a property and was asked by my real estate agent to sign to remove the contingencies. My agent said the seller wanted to remove the contingencies because he was doing a 1031 Exchange and wanted assurance that I would perform and close escrow.

Everything was going great. The loan at at the underwriter's stage and escrow was going to close in two weeks, but then we ran into a fairly serious and unexpected snag. The bank knew from the very beginning that the property was going to be vested in my son's name, but two weeks before the close of escrow the bank wanted to vest the property in both our names. 

My agent and the bank kept telling me that the name the property was vested in was no big deal and all I had to do was quitclaim the property to my son some time down the road. I am 71-years old and spent the past two years working hard to transfer and gift properties to make life easier for everyone when I leave this world. There was no way I was going to put this new property in my name where my son would have transfer and tax problems down the road.

the bank finally realized that my son paid more than 50% of the down payment and the bank vested the property in his name, but if the bank did not then I had already given up my right to back out of the purchase when I signed to remove the contingencies. I will never do that again.

Looks like the contract says that’s what you have to do, if it’s been 30 days you should remove contingency based on what you posted. In fact if you don’t perform they might have a case to keep you EM even if you don’t sign anything as it’s was been the 30 days.

Whenever we sell something we put clauses like this in because nothing is worse than wasting 30-45 days with a buyer only to have it fall through. Sometimes the EM is hard after inspection. Sellers want paid (damages) for buyers wasting their time. I know I do.

Contingencies are meant to expire....  they are a way to ensure certain items are completed timely.  Your seller is correct - and you need to remove your loan contingency today or risk losing the deal. 

ETA: a loan contingency as I understand it, is for you the buyer to have time to get your loan APPROVED..  not closed. 

Originally posted by @Lena Hanson :

Hi BP community, I just wanted to get the feedback and advice from investors/realtors/lenders on this forum.  I'm currently under contract to purchase a SF house in the Riverside county area.  


I was curious - what's everyone experience right now on removing loan contingencies before the close of the sale?  Is this a normal practice? I understand that when you remove all contingencies from the contract, if we do not finalize the loan on time or the lender does not fund - then the seller can keep our Ernest money.  

Background - we were searching for months in the area and continued to get beat out by multiple all cash offers that were ~$45-55K over listing price.  Many of the houses we viewed were listed for 1-2 days before locking into contract. We saw a significant increase to listing prices since Nov '20 (not surprising as this is similar in the rest of CA).

We thought we landed on a gem b/c this property had fallen out of escrow due to last buyer's inability to close the loan.  We came in with a pre-approved loan letter, half of the Ernest money as down payment.  We had a 30 day loan contingency and an estimated 40 day close (4/19) listed in the contract. We've hit our 30days today 4/10.  The seller is pushing us to remove all contingencies.  She's not being flexible and will not sign an extension. Our lender/ escrow/title is estimating ~4/16 to close.  From everyone we've talked to, it's completely normal for things to shift by a week or so and typically a seller will extend the contingency. With her past history, she won't budge.  


The seller is the listing agent.  Seller told our agent that she continued to get all cash offers much higher than ours, after we locked into contract. She kept her listings up for a week after we locked into contract and my agent's office had to push her to tag it as under contract. Our agent thinks the seller is trying to keep the Ernest money, back out of the contract, and go with the all cash offers  :(  Shady! 


Any ideas on how to handle or mitigate risks on our end? 

Thanks in advance for your advice!

Lena


Lena,

You're purchasing with the standard CAR Residential Purchase Agreement, right? Has the listing agent/seller delivered a Notice to Perform yet?

Thanks,

Jon

 

What alarms me is so many folks dont understand what contingencies are and how they affect a buyers/sellers ability to close - a finance contingency is a courtesy from the seller- which also means the buyer can back out if they cant get funding. In a hot market I would not be pushing fie extension of any contingency! 

In CA that contingency and process isn't unusual. Our personal residence we had agreed to remove that contingency within 14 days I think, and a 30 day close. Sounds to me like the seller just expects you to do what you said you would so I'd remove the contingency and proceed to close 

If you was the seller you would want the buyer to lose a little bit of earnest money if they strung you out for a long period of time. 

 

I am so confused 

Do I have this wrong?


it said get the loan commitment in 30 days.  It’s been 30 days 

Seller has said remove contingency or cancel contract 

What am I missing please?


Originally posted by @Lena Hanson :

Hi BP community, I just wanted to get the feedback and advice from investors/realtors/lenders on this forum.  I'm currently under contract to purchase a SF house in the Riverside county area.  


I was curious - what's everyone experience right now on removing loan contingencies before the close of the sale?  Is this a normal practice? I understand that when you remove all contingencies from the contract, if we do not finalize the loan on time or the lender does not fund - then the seller can keep our Ernest money.  

Background - we were searching for months in the area and continued to get beat out by multiple all cash offers that were ~$45-55K over listing price.  Many of the houses we viewed were listed for 1-2 days before locking into contract. We saw a significant increase to listing prices since Nov '20 (not surprising as this is similar in the rest of CA).

We thought we landed on a gem b/c this property had fallen out of escrow due to last buyer's inability to close the loan.  We came in with a pre-approved loan letter, half of the Ernest money as down payment.  We had a 30 day loan contingency and an estimated 40 day close (4/19) listed in the contract. We've hit our 30days today 4/10.  The seller is pushing us to remove all contingencies.  She's not being flexible and will not sign an extension. Our lender/ escrow/title is estimating ~4/16 to close.  From everyone we've talked to, it's completely normal for things to shift by a week or so and typically a seller will extend the contingency. With her past history, she won't budge.  


The seller is the listing agent.  Seller told our agent that she continued to get all cash offers much higher than ours, after we locked into contract. She kept her listings up for a week after we locked into contract and my agent's office had to push her to tag it as under contract. Our agent thinks the seller is trying to keep the Ernest money, back out of the contract, and go with the all cash offers  :(  Shady! 


Any ideas on how to handle or mitigate risks on our end? 

Thanks in advance for your advice!

Lena

I believe you need to have an honest conversation with your loan agent and see why he/she wasn't able to perform within the time frame. If you really want the property and you are confident you will get funding, you might have to put your money where your contract is and let your EM deposit become the non refundable promise to the seller. If contingencies can stay till close of escrow, what's the point of an EM deposit? Although it is standard practice to request extensions on contingencies and escrow periods, I don't blame the seller for not wanting to agree to an extension. 

We went after a tiny house in Torrance that was listed at 850k that needed a full gut and rehab. We had zero chance as it was purchased with cash at over a million.. 18 day escrow. This is the kind of market we are dealing with right now and if the seller is getting multiple cash backups right now, as cold as it may sound, I can't fault them for not wanting to budge. In their eyes, the fact that you cannot lift loan contingency after 30 days is a huge red flag. 

Updated 27 days ago

I think @jon Schwartz has asked the right question. If the seller has submitted a notice to perform, you have 48 hours till they can cancel the contract.

Originally posted by @Marc Rice :

@Lena Hanson

Don’t remove the contingency, stick to the original contract.

That is what the original contract states 


3) LOAN CONTINGENCY REMOVAL:
Within 21 (or 30) Days After Acceptance, Buyer shall, as specified in paragraph 14, in writing, remove the loan contingency
or cancel this Agreement.

 

Hi Everyone wow - thanks for all of the feedback! 

@Michael Plante and @Josh C. you are right.  We had it written into the contract.  If we did not sign contingency removal, we would be in breach of contract and that would mean seller could cancel the contract and keep our EM anyway. @Jon Schwartz - So we ended up signing it and lifting off of the contingency.  We didn't wait for the notice to perform although it would have bought us 48 hours.  

More than anything we wanted to get a gauge for what's happening out in the market.  Filing extension requests are pretty normal but ultimately it's up to the seller.  It's def a sellers marketing right now.  Coming off of buying at auctions and doing cash out refinances and buying with all cash, we haven't done a proper conventional loan in over a decade.  Even if I think back, I don't recall ever being pushed to remove the loan contingency.   With all of the seller's all cash offers, she's trying to back out and figure out how to keep the EM.  Our lender has been calling her and emailing her so she knows we have been approved by lender and we're scheduling to close w/ Title this week.  This post (@Mary M. ) has def helped me see it from a seller's lens.  We're buy and hold and we don't do much of selling at all. 

Seller wants out so that she can collect the EM and on top get another $50K over asking with these all cash offers.  If she was success at this, she would be making another $90K+ with this strategy.  It's a sharks game.  We have to keep pushing to close to ensure that we finalize everything this week.   Thanks for everyone's inputs on this one!

"She's not playing fair game b/c she doesn't want to be here. "
-----------------------------------------
If she's following the letter of the contract, she's playing fair. May not be courteous, might even be against "industry standards," but she's being fair.

Put yourself in her position. Would you take the extra money if you could? Would you close on the property and then immediately flip? Suddenly "wholesale" the contract? Of course you would.

Whining is forbidden in commerce. This is commerce.