Shady Seller - Loan Contingency removal BEFORE title is complete

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Shady Seller - Loan Contingency removal BEFORE title is complete

Account Closed
Wholesaler · San Diego, CA · Member since 2015 · 48 posts · 12 votes

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

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Josh C.Pro Member
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
5y

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.

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  • Dennis Pressey Jr
    Specialist · Philadelphia, PA · Member since 2014 · 231 posts · 69 votes
    5y

    @Lena Hanson

    Simple. Say ‘no’. End communication, close the deal before the expiration of the contract. Tell your lender it is TIME TO PERFORM.

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  • Dennis Pressey Jr
    Specialist · Philadelphia, PA · Member since 2014 · 231 posts · 69 votes
    5y

    @Lena Hanson

    Additionally, there is typically standard extensions and grace periods for deadlines. Something like: ‘title commitment due on or before Apr 19th. Buyer shall have 5 days to cure’ etc etc

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  • Aaron Poling
    Realtor · WV · Member since 2018 · 454 posts · 310 votes
    5y

    @Lena Hanson in my experience it can work both ways but depends on what is in your contract. In some cases the financing contingency could automatically expire, in other situations there could be auto extensions until the loan commitment. Most of this will depend on your local real estate laws, and what is in your contract. I suggest speaking with a local real estate attorney for some guidance.

    Not sure in your area but in mine even if the contract expired there would need to be a release signed before EMD could be disbursed.

    Hope it works out for all! Thanks Aaron

    1Reply
  • George Munoz
    Real Estate Agent · Fort Lauderdale, FL · Member since 2018 · 360 posts · 213 votes
    5y

    Dont change the contingencies...  and push that loan officer. ( explain the situation , you still have a few days good... ))  orr find the way to pay cash .. ...    She has the right of not extending,...  and yes she might be not playing fair.. but it is what it is... 

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Account Closed that is kind of unreasonable to call the seller shady after they ask you to comply with the contract you signed. As you said, they had another buyer fall through due to financing issues. On top of that the property has appreciated in value. I am sure from her perspective, she doesn't want to waste time with another flaky buyer. 

    Honestly, having 4/19 on your contract and estimated 4/16 close is cutting it way too tight. Either your realtor didn't allow enough time in the contract or your lender drug their feet. Either way, the realtor is really to blame here for not managing this properly. Just asking for extensions and expecting the seller will grant them is sloppy. 

    Good news is that the property seems to have gone up in value and demand. Call your lender every day until closing. Find a new realtor for the next purchase.

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  • Account Closed
    OP
    Wholesaler · San Diego, CA · Member since 2015 · 48 posts · 12 votes
    5y

    @Joe Splitrock  IMO seller is shady b/c she didn't tag the property as under contract after she signed it - well over a week after and only after I/our realtor pushed for it.   In fact, she still has a for sale sign in front of the lawn -  we're 32 days into the clock.  I mentioned it to my realtor yesterday since all contingencies are removed she needs to at min show it's pending/sold.      

    I was curious too around what is the 'right' way to approach it for next time.  Was looking for how a 'normal' transaction is contracted and what other investors do on their contracts on the loan contingency vs closing date space in between to ensure that next round we don't put ourselves at risk.     Thanks much.

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    Yard sign normally says in the yard until closing, although usually marketed "under contract". As far as the MLS, it should be marketed as contingent as soon as the contract is signed. Realtors like the signs in the yard because it is free advertising. It doesn't mean she is trying to sell that property, but she is likely trying to find other buyers. I have had signs in my yard after closing and had to call agents telling them, "remove it or today I will".

    On my contracts, the financing contingency goes all the way through closing. I have never had it happen, but I have heard of investors loosing financing at the 11th hour. You don't want a situation where financing comes through and you loose your down payment - not with that much money on the line. 

    As far as closing date, we try to pad one week past when the lender thinks they can close. I follow up regularly with my lender and push asking to improve the date to keep up the sense of urgency. We have never had a deal close past what we had on the contract (knock on wood). The reason I was picking on your realtor is they should be monitoring the schedule and making sure appraisal, lending documents, closing date, etc. all flow on schedule. That is one of a realtors jobs. Asking for extensions is reactive, not proactive. 

    We are in a sellers market, so unfortunately they hold more power. We all have a tendency to "overplay" our hand when we think we have the position of power. I am guessing it will all work out. Hope it does. Good luck.

    2Reply
  • Jon Schwartz
    Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
    5y
    Originally posted by @Account Closed:

    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.  

    Lena, I think you need to work with a more experienced (or at least savvier) realtor. You weren't even close to being in breach of contract, and you certainly weren't anywhere near risking losing your EMD!

    Re-read paragraphs 14E and 14G of the CAR Residential Purchase Agreement, titled "Notice to Buyer or Seller to Perform" and "Close of Escrow."

    If you're in a disagreement over lifting contingencies, you should always wait for the seller to deliver a Notice to Perform. You'll have two days to respond to this. If you don't, the seller can deliver a Demand to Close Escrow. You'll have three days to respond to this -- and if you do respond by closing escrow, you get your EMD back!

    So you could have bought yourself five days and gotten your EMD back. Only if you don't respond to the Demand to Close Escrow does the seller have the right to unilaterally close escrow and claim your EMD.

    Despite this being a seller's market, despite what your purchase agreement says, the state of California has tremendous consumer protections in place across the board. It's important you -- and moreover, your realtor -- know them in an out.

    Important disclaimer: I'm not a lawyer; this isn't legal advice; consult an attorney before pursuing any action related to what's discussed here.

    All the best,

    Jon

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  • Account Closed
    Member since 2020 · 984 posts · 1k+ votes
    5y

    I don't particularly care for the ideas (posts) that the sellers want contingencies removed because they don't want sellers to waste their time. For my recent purchase of 6 units, the seller and my real estate agent wanted me to remove all the contingencies about 30 days after opening escrow. We had something like 30 days to close with a 30-day extension (can't remember). I never ever expect an escrow for a multi-unit property to close in 30 days and when I allowed them to remove all the contingencies I am guessing that my 30-day extension was also a contingency that was removed since the purchase of the property was contingent upon my ability to get a loan. Near the close of escrow the issue regarding the name the property would be vested in was serious enough to back out of the deal because my son did a 10-31 Exchange and I was only giving him a bridge loan to purchase the property because my son had 5 properties on the market in Las Vegas. The tax implications could have been tens of thousands of dollars, or maybe more than a hundred thousand dollars.

    Sellers don't always do everything possible to help escrows close faster and many sellers fail to produce documents and get repairs completed as fast as they could. While saying sellers don't want to waste their time we have to stop and remember the buyers are often putting everything they built up throughout their entire life into a property and many sellers are liars and real bast..when it comes to pulling the plugs on buyers because they think they have some sort of godly rights.

    I had a 24-unit property in escrow for $2.25 million. I put $50,000 in escrow and the escrow was for something like 60 days with a 15-day extension. My real estate agent spoke with the seller and his agent no less than one time every day for 55 days and the seller knew our bank was taking their sweet time and the escrow would close about 5 days after the 60th day.

    Even though my broker spoke with the seller and his agent every day, on about the 60th day of escrow, the seller sent a document saying I defaulted and he was keeping my

    $50,000 earnest money. My loan broker told me to sue the seller and tie the property up in court, but I had already been through that where the court case cost $50k and took 5 years. So, I got a hard money loan for something like $1.5 million for only 5 days and I think the loan cost me $40,000 to $60,000 (can't remember).

    There are some very sharp sellers who love to play god and screw over the amateur investors and take their life savings from them. I would rather see a seller's time wasted than see an investor lose his hard-earned money and I can't see why the buyer would do anything for a seller for the purpose to make the seller feel comfortable.

    BUYERS BEWARE! Never trust a seller and do everything possible to cover yourself with legal documents.

    1Reply
  • Luis Silva
    Residential Real Estate Broker · Sacramento, CA · Member since 2014 · 54 posts · 23 votes
    5y

    @Lena Hanson HI Lena, I think you already had your question answered but typically a CA purchase agreement has a 21 day loan contingency... so its impressive that you were able to get 30 days in this market. With that said, it's typical to remove all contingency prior to close of escrow, but to be clear, the moment you remove your all contingencies your deposit is now at risk. The contingencies are designed to cover you through your due diligence period for inspections, appraisal, and the loan. I would highly recommend reaching out to your lender and confirming where you are in the process and if there are any issues that would prevent you from closing.

    Also, it is common that their are delays, however, the contract clearly outlines the timeline and even though you can ask for an extension of time, the seller does not have to agree with it and they can even submit a notice to perform.

    Hope that helps, good luck!

    1Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    5y

    @Account Closed  you made some good points sir. I had a seller try to sabotage a deal before and then blame it on me. It caused lots of stress and I had to hire an attorney to get involved. If a seller has a new offer that produces a much higher gain then they can knowingly or unknowingly work to derail the closing with their current contract in order get out of contact.

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  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    5y

    I really like the name of this post bc I think its something some scammer sellers will pull especually with off market deals.  Due to the current environment of high demand more will look off market.  Title is extremely important and probably the biggest reason soneone should hire a realtor if on tbe buyers side.  A good title company will not let the transaction happen without clean title.  If the seller doesn't like it too bad.  That said the realtor should have had the lien cert or whatever its called where you are all ordered as early as possible to avoid this.  

    The market is up this year but I doubt things have changed that much in the last month.  If she is this pushy and shady she is the exact sort of person that would have no problem selling you a house with 100k in mechanics liens attached to the house or sell the same house to 3 other people on a quitclaim deed.  Then you all show up the same day expecting it to be only yours.

    Don't bend on title as its needed and get title insurance.  Hopefully title has done preliminary work to notice liens attached to it or the seller.

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