What sort of Monopoly is this?

Question

Recent REO listing 98 DOM description as follows:

Great Bank Owned Home in West Valley Pines. 5 Bedrooms, 4 Bathrooms, vaulted ceilings, mature fruit trees. Nicely landscaped yard in the pines. Very nice neighborhood in West Valley, minutes to town. Bank of America Prequalification required on all offers. Free appraisal and credit report if buyer finances through Bank of America Home Loans.

Do they have a right to require BOA prequalification? I guess since they own the property they can put whatever stipulations they want on the sale but this is the first I have seen of this in my area.
 I guess it is not new as found in the note at the end of page 1 in this document. http://www.reosandshortsales.com/uploads/REO_agent_instructions_1-25-10.pdf

J Scott · Answer

If one of our buyers insists on using their own lender (only about 20% of the time), we include a stipulation in the contract that that we reserve the right to contact their lender, get a copy of their credit report and do whatever investigation we feel is necessary to ensure they are qualified buyers.  We have 3 days to do this, and can back out of the contract (as sellers) if we get information we don't like.

This is perfectly legal, and any buyer who is confident they are qualified should have no issue with this...

Bryan Hancock · Answer

I really dislike banks and have made that point known as long as I have been on this board.  Having said that I think it is perfectly acceptable for them to decide how to qualify people that buy the collateral they seize.  It would be nice if we didn't gift a bunch of bloated idiots tax dollars to allow them to be so choosy, but that is a different topic for a different thread and day.

Giving a buyer a financing contingency in a contract is like extending them credit and the seller should have every right to do some homework on them.  An alternative to what JScott mentioned is the have them commit a non-trivial amount of money that is hard immediately if they are serious.  Earnest money is truly earnest at that point!

Mitch Kronowit · Answer

This is what we discovered over a year ago when we started shopping for property again, i.e., the REO seller requires that THEY pre-approve you before you can submit your offer.

Let me get this straight - BofA, Wells Fargo, Chase, etc., are all sitting on a mountain of REO's because THEY lent money to a host of unqualified borrowers, but now, THEY are the experts when it comes to pre-qualifiying a borrower coming from another lender???

No wonder I laugh and cheer every time a bank fails or other wise gets a black eye. What a bunch of jerks.

J Scott · Answer

There have been a couple threads on this, and all have degenerated into stupid arguments (I'll take at least 50% of the blame :)...

I suggest using this thread to discuss this topic again in a civil manner...here is what I know and don't know on the subject:

There is a prohibited action in real estate known as "Mortgage Steering" (I think it's from RESPA) that basically says that a licensed agent may not require a buyer to use a specific financing mechanism or lender/broker.  In addition, I was under the impression that it was also illegal for a licensed agent to require a buyer to get pre-approved through a specific lender/broker, though an agent can require a pre-approval.

It's also worth pointing out that an unlicensed seller has every right to require anything they want from a buyer in terms of financing, including specifying the lender, requiring a pre-approval from a specific lender, etc.  Mortgage steering only applies to licensed agents.

Now, this is where things get fuzzy for me...

Bill once mentioned (I believe) that REO agents were exempt from this rule and could require pre-approval from a specific lender.  I don't know anything more about that.

In addition, I was talking to my wife's broker last week who knows a good bit about the case law in these matters, and she told me that requiring pre-approval from a specific lender -- whether REO or not -- is not prohibited by the mortgage steering rules.

I find this a little hard to believe, so I intend to follow-up with the Georgia Real Estate Commission, but haven't done so yet.

So, while it's clear to me that agents cant require buyers use a specific lender and that unlicensed sellers can require a specific lender, the rules around pre-approvals from specific lenders is still unclear to me and I've seen/heard conflicting info from reputable sources.

That's all I have...hopefully Bill or others can chime in and I'll try to get more clarification from the GREC...

Jon Holdman · Answer

I think this pre-qualification requirement is nothing more than yet another roadblock intended to thwart wholesaling.  As has been mentioned in numerous "where do I get a POF letter" threads, its trivial to find a meaningless pro-approval letter.  I think the lender is trying to force the would-be buyer to show they are truly qualified to buy the home.  If you have a bank statement in your name showing you have the cash, I doubt the pre-qualification will matter.  OTOH, if you're sending in some bogus pre-approval letter, the pre-qualification requirement is one tool the seller can use to reject your offer.

As to the legality, I have no idea.  I've seen this clause on numerous REOs, though.

Account Closed · Answer

i missed that thread too...i'd like to see it as well...ahem...steve.... :D

this is normal practice where i am..i think the banks are tired of having "qualified" buyers not be able to close, so they crosscheck with their banks to make sure they're dealing with qualified buyers...they don't force you to use their bank though, as far as i know anyways

Sam M. · Answer

Anyone have a link to the thread mentioned?

Marc Freislinger · Answer

Earnest money tends to be a joke. I've never seen someone lose it. With a financing contingency, backing out because the loan falls through doesn't violate the contract.

JScott's idea seems to be best to me. Say "use mine or I'll qualify you myself." Then send their information your own loan guy to see if they have a chance in hell.

Chris Martin · Answer

I think the bottom line is this. You can use any pre-qualification you damn well please. The bank can reject any and all offers as they please. It's that simple. I tend to try to find out what the seller wants, then provide it... of course at the lowest price possible. Most lenders say property sold "as is" too, and if you submit an offer that is conditioned on seller repairs (for instance, so you can qualify with your lender's underwriter) then the seller can say 'too bad' just as easily. By saying "as is" upfront, they save everyone from wasting time, energy, grief (for OOs), and ultimately money. As a cash buyer, I agree with Jon's statement "If you have a bank statement in your name showing you have the cash, I doubt the pre-qualification will matter." The REO sellers I bought from this year all seemed to be Okay with cash. (The only minor exception was a SDIRA purchase, but that's a different topic.)

Justin S. · Answer

It's actually good business practice and if we could pre-qualify our buyers, we would as well.  I've a had a property fall out of escrow twice because the buyer could not get financing even though they are pre approved.  Imagine holding tens of thousands of properties, that's a lot of time wasted.

What sort of Monopoly is this?

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