Can a seller deny offers financed by certain banks?
Scottsdale, AZ · Member since 2013 · 70 posts · 17 votes
I preapproved a borrower to put in an offer, but the listing agent denied the offer because it was from a big bank. There is a misconception that my bank won't finance a "flip" transaction. Our guidelines clearly state that we will, so I forwarded to the buyers agent, to forward to the listing agent. The buyers agent sent the clients to a broker thinking their prequal would do the tick but I tried to get it through to him that since the loan is under the conforming loan limit, the guidelines will be set by FNMA or Freddie for any lender.
Any suggestions on what I should do here. Is this ethical for the listing agent to do?
This makes no sense to me. A buyer is not "able" unless they have the money. And until they get a clear to close from a lending institution's underwriter, they don't have the money. So, until they get that CTC, they are not "able" to purchase the property.
I *very* often will discriminate against buyers based on their lender. We've sold a lot of properties in our area, and we see the same lenders/brokers over and over. There are several brokers we won't do business with anymore because they failed to perform in past transactions (or were just idiots).
A seller can't be forced to accept an offer, and other than the few obvious legal requirements against discrimination (Fair Housing Laws), a seller can turn down a buyer for any (or no) reason whatsoever. Including not liking the lender.
Here's an example to think about: Let's say you have a property that's gone through 5 title changes in the past 2 weeks. Now the seller wants to sell it for $100K increase in value with no work done. There is ZERO percent chance that an FHA underwriter would approve a loan on this property. But, let's say that a buyer's idiot mortgage broker says, "Oh, that's not a problem...I can definitely get this loan done." And he issues a pre-qual letter. We all know it's not possible, but are you saying that the seller has to accept the offer because the buyer has a pre-qual letter?
It depends on any additional addendums the seller has. On the listings that we sell within 90 days of our purchase, we require the potential buyers to be preapproved by the lender we use. We have this because we have had many lenders say they can fund a flip and then find out they really can't when U/W denies it. We have to allow a buyer to use any lender, but we can require them to be preapproved by ours. We do this so there is a back up in place if U/W says no. Anything that is under contract after 90 days, we remove that requirement because most bank overlays are 90.
Interesting quagmire. I have no idea, but curious to see responses. Damn.
If I were you, I'd do my best to get that buyer ticked off at the seller and buy another unit. Tell the buyer to imagine the trouble they're going to have to deal with working with such a difficult seller/seller's agent when the transactions not even accepted. This is a red flag to me. I don't do buyers period, but if one of my buyer agents came to me with this, my strategy would be such.
Thanks for the responses guys. Does anyone else think that this seems borderline to steering in a round about way?
Mike,
Does your lender portfolio everything they write? Do they not sell to FNMA and Freddie on the secondary? I guess what I am trying to ask is what makes your lender able to do flip transactions and supposedly other banks can't? What other banks have you seen deny buyers in the past? - thanks
Also, the buyers agent would most likely have recourse if the offer that was made was for asking price or higher. In most states, if an agent bring a "willing and able" buyer, and that buyer offers asking price or higher with no contingencies, they have the ability to sue for the commissions they would have received.
From the mortgage end though, I do not believe you would have any recourse though. I know it is frustrating, but there are just some people like that out there.
The last property I sold retail I got three acceptable offers, all the same amount over asking price. The agent and I analyzed the offers and the deciding factor was......the buyer's lender. Is there some kind of law or policy preventing me from eliminating a buyer based on their lender? If sellers weren't allowed to discriminate based the buyer's lenders, wouldn't the offers be submitted without lender info? I ask this in all honesty, as it's news to me if I don't get to analyze a financed offer the same way I analyze a cash offer. The location and availability and contingency of funds is an issue with all offers.
In Florida, and I'm sure all if not most states, the buyer agent has zero right to pursue a commission from a seller. Only the listing broker can do this as he has the contract with the seller. IMO:)
From the mortgage end though, I do not believe you would have any recourse though. I know it is frustrating, but there are just some people like that out there.
It's the "no contingencies" that makes all of this moot. In my experience, a full-price offer that includes financing would contain a financing contingency. It's going to be the rare buyer that will put earnest money into escrow and not put a financing contingency in there. As a seller I don't have to accept a full price offer with contingencies.
Virtually no listing contract contains an out for a seller for "contingencies." A ready, willing and able buyer offer can include a financing/inspection contingency. I've never seen a listing contract address contingencies of any type. IMO and experience.
This makes no sense to me. A buyer is not "able" unless they have the money. And until they get a clear to close from a lending institution's underwriter, they don't have the money. So, until they get that CTC, they are not "able" to purchase the property.
I *very* often will discriminate against buyers based on their lender. We've sold a lot of properties in our area, and we see the same lenders/brokers over and over. There are several brokers we won't do business with anymore because they failed to perform in past transactions (or were just idiots).
A seller can't be forced to accept an offer, and other than the few obvious legal requirements against discrimination (Fair Housing Laws), a seller can turn down a buyer for any (or no) reason whatsoever. Including not liking the lender.
Here's an example to think about: Let's say you have a property that's gone through 5 title changes in the past 2 weeks. Now the seller wants to sell it for $100K increase in value with no work done. There is ZERO percent chance that an FHA underwriter would approve a loan on this property. But, let's say that a buyer's idiot mortgage broker says, "Oh, that's not a problem...I can definitely get this loan done." And he issues a pre-qual letter. We all know it's not possible, but are you saying that the seller has to accept the offer because the buyer has a pre-qual letter?
As a seller, I've rejected offers because I didn't like the mortgage company or the loan officer. I've found that anyone can be a loan officer. An I.Q. over 80 is not a prerequisite. There are WAY too many idiots in the mortgage business.
As far as it being “steering”, I would disagree. Steering is when you guide someone to live in a certain area because of their race. This mortgage “steering” has to do with past experience and reputation, not a protected class.
@Sandy, I'm sure your listing agreement (and ours) has no language distinguishing a financed offer as not able. But, it doesn't matter, general real estate law will preclude a seller from "having to accept" a financed offer as a "ready, willing and able" buyer. No contengencies whatsoever would be necessary.
Paul Cordero, as long as the listing agent is correct, I'd have to agree with him. But, was his reasoning because"they won't do flips" in general, which doesn't sound right, OR is it that the property condition simply doesn't meet FNMA guidelines, which would make sense.
WOW! I'm surprised at some of the comments here!
Unless an agent, any listing agent broker, has written instructions not to accept an offer below a certain price or as to any type of financing like FHA, that listing agent/broker is required by law in every state to present ALL offers. I say in all states because it's the law of agency and the relationship of an agent and the client as much as it may be in state law under the real estate commissions.
Unless you have specific instructions to do or not to do something you are obligated to act in your capacity. Unless you are managing the estate as a conservator or have specific authority under some legal standing besides a listing agreement, you don't have the authority to reject any offer based on anything, it's not your job to assume control over any offer! You may consider yourself a real estate expert compared to your client, but you are never aware of all the facts, never, regardless of how well you think you know your client.
If you attempt to influence an owner to accept or decline any offer that is unethical conduct. You advise within the scope of your knowledge and experience, you can give market opinions, you can give your experience (facts) about closing experiences involving any lender or buyer or title company, but you have absolutely no business telling an owner to accept or decline any offer. I know many agents do I have also seen them and brokers buy hosues, saying things like "Don't accept that, I can get you a better price".
I don't believe we have any real estate BROKERS in this thread yet and this should be well understood at the agent level, but if I found that any agent under my broker's license was influencing an owner to deny any offer, beyound what I mentioned, I'd be telling that agent not to let the door hit them in the butt on the way out, they would be terminated!
As to lenders, as a matter of fact, there is federal law concerning the degradation or making false statements against a federally insured lender. For an agent, it's clearly an unethical practice as well as being illegal. Saying a lender can not perform is threatens the ability of the lender to earn profits which is not only an issue to the federal banking system but also to the public good and ability to secure deposits. While you, being the expert mortgage compliance officer that you are, won't really threaten the US banking system alone, if all Realtors acted in that manner it could impact lenders and the system.
Beyond federally insured lenders, again, unless you have facts as to the ability of a licensened broker being unable to perform, it's not only, not your business, it's none of your business. Not trying to be so snide, but that is it, it's not your business in that you have no idea what the source of funds might be or when that mortgage might be sold in the secondary market. It's none of your business as a Realtor or as a seller in that it is irrelevant to your position of how any buyer obtains funds necessary to close. It's also not your business to know or understand the internal workings or operations of any lender's business.
Most courts follow the thinking of what's good for the goose is goog for the gander. Any individual that say's "I refuse to sell to anyone who uses BoA or Joe's Mtg. Brokerage" is entering a reverse form of red lining or denying that lender to operate in and for the public, degradation perhaps slander and you are liable for any loss, not only as to that deal but to reputation.
As to loan prequal letters, they mean absolutely nothing to very little. If they are subject to apprasial only, that can be a committment to lend subject to what is common in the industry. If it is subject to buyers showing funds, presenting completed tax returns, or any hoops a buyer must jump through, it's not a committment, it's subject to the buyer performing, already a matter under the contract. Generally lenders give prequal letters very carefully so as not to make a loan committment as that becomes thier liability to perform.
Sellers; they can never be forced to sell, they can be made to wish they had sold. Any offer at the full asking price by a willing and able buyer becomes the liability of the seller to pay costs and commissions. If there are only property contingencies, it's the seller who must move. If there are normal financing contingencies, such as insurable title or executing documents, those will be assumed to be met, such are not an excuse not to perform. Usual and customary contingencies will not save you from being liable under your contract.
If you list saying cash only, you certainly limit your market but then you can reject any financing. You can eliminate FHA/VA financing as the requirements to pay loan costs may be avoided if required. Any financing offer that requires the seller to pay or make repairs may also be avoided. But if you list and say or allow financing you may not pick and choose any program or lender. You also can not require a buyer to obtain any loan from a particular lender, you can not dictate the source of funds. Agreeing to allow financing means you accept the usual and customary headaches as well, that's part of the system.
Lastly, a seller or buyer or even an agent may hold a lender liable as well to perform, it's not a one way street for lenders. All parties to a real estate transaction, including closing agents, by contract or by appointment to perform a task are all liable to others to act in good faith and perform thier obligations.
My comments here are not meant to sting anyone, it's that the scope of the topics was eaiser to comment in a more direct manner and perhaps due to the fact that agency relationships should be well understood, it saved many words to an already long post. :)
Wayne Brooks
The listing agent's reasoning was because the big three "won't do flips" in general. The propery condition meets FNMA guidelines. I even sent the buyer's agent the red flags listed in our guidelines that an underwriter would deny a "flip" transaction for, and this property and all parties involved pass with flying colors.
J Scott
J - I get your point and agree to some degree, but what happens when several sellers start excluding offers from certain banks based on rumor or misconceptions of certain banks in the industry? Working for one of the big guys, I deal with this daily. The scrutiny should be placed on the loan officer or banker on getting the deal done, not the bank as a whole. Especially when most every bank sells conforming loans to FNMA & Freddie, and they are the ones dictating the guidelines.
Bill Gulley, I agree. As an agent, when I might say "we don't accept" to another agent/buyer, what I'm Really saying is, "this doesn't make sense for my seller and I'm certainly going to tell him why", such as a FHA financing contingency on a house that surely won't qualify. But, all offers get forwarded no matter how ridiculous.
Another pet peeve, which I do "strongly influence" my client over is when we receive these interenet acquired "loan prequalifications" from the "ZYX Private Money Excahange/Supposed Lender/Pay Me For A Prequal Letter, Inc" companies.
One more thing I forgot to add, the listing agent put the "Not accepting offers from the following banks..." contingency in the listing addendum.
I believe the seller should see all offers, and puting this contingency in your listing info is driving away potential buyers from even putting in an offer.
You can see offers that are cleaner with a lower price accepted all the time.
Paul Cordero if your bank is providing good service the business will come. You are not owed business and if your service is bad you won't get it.
You need to get out there and convince some agents that you are competitive and will close within the allowable time frame the EMA promises. There are reasons agents aren't sending business your way.
@jeffS.
I agree 100%
BTW - Agents are sending business my way, that isn't the issue here. I deliver on my word, it just doesn't help when you have gained that business and the agent on the other side won't accept the offer because of a past experience or misconception with the "Big Banks". This is not good business in my opinion.
As far as it being “steering”, I would disagree. Steering is when you guide someone to live in a certain area because of their race. This mortgage “steering” has to do with past experience and reputation, not a protected class.
Rob K - the steering you pointed out pertains to housing choices. But there are other forms of steering that are illegal. One of which is when a real estate agent tries to get a party to a transaction to use some service with which that agent has some affiliation (so there might be a kickback). I believe that this is the sort of steering that was of concern in this thread.
Paul, there are idiot sellers and listing agents, you have one or the other here it looks like.
Read again what I mentioned about degradation of a bank, the listing agent is clearly in violation. I suggest you educate them. I also suggest you speak to the agent's broker. I'll bet the broker is unaware that an agent is refusing to do business with any regulated lender, publicly advertising by clear implication that a bank can't perform.
You can also turn the matter over to, the state RE commission, the Board of Realtors, FDIC and the Treasury IG, I assure you they will not take kindly to such public implictions. As to this one deal.
I've been on both sides of this, as a mortgage broker and Realtor.
Jeff is right about getting out there and gaining confidence of Realtors. You won't win them all and that should not be your goal. Gain the business of those you can and defend forcefully against those who may work against you in an ethical and legal manner, educating them. Saying that you need to inform some of thier liability arising out of thier uninformed opinions.
I'd suggest you not argue with a Realtor about if a property will conform to secondary market requirements, you really don't need to go there with them, stress the fact that you have a vault to tap into to fund anything you're willing to fund, end of discussion! Selling the loan is the bank's problem, not thiers.
I've dealt with a thousand+ Realtors, I'd say at the initial meeting about 90% thought they knew more about financing than I did, thier deal is on you and they are concerned, closing is what they want. Competence is what they need to see.
I remember my very first mortgage I made, the borrower had been turned down so the Realtor was hoping to have a deal. I got it done and that Realtor was my best advertising from then on. That's what you need to do, show them. You'll get a reputation based on what you can do. The down side of being able to get tough deals through is that you may feel like all you get are the tough ones. Starting out that's how I felt, I'd tell them, you owe me two good loans for this one!
I think Wayne mentioned internet prequal letters. What you can say is that only prequal letters from known lenders may be accepted and you reserve the right to require proof of funds or ability from unknown lenders. That doesn't slam any lender and solves the issue of bogus letters.
The listing agent's reasoning was because the big three "won't do flips" in general. The propery condition meets FNMA guidelines. I even sent the buyer's agent the red flags listed in our guidelines that an underwriter would deny a "flip" transaction for, and this property and all parties involved pass with flying colors.
J Scott
J - I get your point and agree to some degree, but what happens when several sellers start excluding offers from certain banks based on rumor or misconceptions of certain banks in the industry? Working for one of the big guys, I deal with this daily. The scrutiny should be placed on the loan officer or banker on getting the deal done, not the bank as a whole. Especially when most every bank sells conforming loans to FNMA & Freddie, and they are the ones dictating the guidelines.
Paul Cordero Your question about what happens when sellers exclude offers from certain banks is a good one. But then you go on to say that loan officers and individual bankers are the issue, not the bank. It would be nearly impossible for the average agent to ignore their past experience with loans that didn't close and not associate the problems with the lender. Unfortunately, brokers and bankers are the face of any bank when it comes consumer perception. If Wells Fargo loans for flip properties didn't close 3 times in a row, and each time there was a different banker or broker, what's my assumption going to be?
Remember, we are in a seller's market right now, with no time or patience for financed offers that have even a small chance of not closing. This too shall pass. :)
Thanks Bill and K. Marie.
I appreciate all of the responses, and encouragement.
Welcome Paul.
And K. Marie makes a very good point concerning that education process, having a good line of communication, and if not, what should a Realtor then assume?
If you don't give good feedback to the Realtor, they will avoid you or they make assumptions. Thier assumptions might be true or they may not be, but it's thier assumption that they will act upon.
Paul, is your bank funding at the table or originating and selling at closing? Or, does your bank do portfolio lending?
I've been through this "the property won't go in the secondary" stuff many times before. Then, some lender with a servicing portfolio pops up and begins funding to people fogging a mirror or a property barely standing (okay, not that bad, but near misses) what are they up to? They are funding and holding in portfolio and servicing the loan for maturity and later when the initial underwriting requirements become stale, they block the loans and sell them as they meet different requirements. That lender simply guarantees that the existing loan meets secondary standards at the time the loan is sold. In this case, no title has been exchanged for over a year. That lender can then be responsible as to underwriting.
And, that too will come to pass, they can stop doing so on Tuesday. :)
Wait...so your argument is: "People should be forced to accept a lender, otherwise the lenders with bad reputations wouldn't get their fair share of the business"!?!?!?
If your lending institution had a bad reputation, they should be focused on fixing it. Fire the bad loan officers, have consistent underwriting standards, have good customer service, hit deadlines, etc. If they do that, they won't have a bad reputation.
But it's riduculous to say that sellers don't have the right to reject a bad lender because you think it's unfair to the lender.
If the bank hires bad employees, they deserve the blame. When one of my employees screws up, I don't tell the customer, "Oh, it wasn't my company's fault, it was just that my employee is an idiot."
Bill Gulley - See Wayne's response above...I don't think anyone here is suggesting that the listing agent not present an offer. But a listing agent has experience and will give the seller their opinion, which the seller will often follow.
J. Scott, I agree, perception and reality.
I agree that seller's usually follow the advice of the listing agent, that's what they signed up for. It's on that agent to give advice on facts not guesses or personal bias, which can be hard to divorce yourself from I know. It's the difference in being a real professional and being an opinionated know it all or putting your client at risk based on personal perceptions. I'm well aware of the reality.
As much as some would like to have "control" being control freaks trying to "protect" thier client, a listing agent can often cross the line as to thier real duties. When a property is listed for sale it is in the open market, unless the seller gives specific instructions, the agent and seller have an obligation to perform in good faith, interjecting personal greviances about others is not acting in that market in good faith.
Might also draw attention to the Code of Ethics of Realtors, making statements, slander, degradating other professionals, not just as to other Realtors but any professional in the industry.
If a Realtor were to say "I've had several clients attempt to get financing at XYZ and none of the loans ever closed" that may be a fact. To say "That lender can't make loans" or "They don't know what they are doing to make a loan" that is no fact, that's an opinion and unknown.
Short story, when I began, Realtors didn't really know me except those in one office. I had a borrower who had a deal with an unknown Realtor. The borrower was a family friend. The Realtor started the bad mouthing and my borrower calls and says the Realtor wants them to go somewhere else.
I turned that Realtor in with a written statement from the borrower. I jacked his broker up so far the RE Commission issued a cease and disist letter and the agent darn near lost his license. At that point I had no use for any real estate agent running around bad mouthing me or my new company. Would an established bank do that....probably not, but they could.
In another deal, a commercial property seller tried to pull the same thing, after a letter from my attorney, holding the seller responsible for our costs and losses, he shut his mouth and closed, BTW, that developer was also an attorney. Thought his girl friend should get the deal.
Keep it up and you may get the opportunity to apply your logic to the reality of laws and responsibilities, they don't always jive.
I doubt many here resort to playing hardball, sometimes it's necessary, play fair and you don't need to go there. :)
Wait...so your argument is: "People should be forced to accept a lender, otherwise the lenders with bad reputations wouldn't get their fair share of the business"!?!?!?
If your lending institution had a bad reputation, they should be focused on fixing it. Fire the bad loan officers, have consistent underwriting standards, have good customer service, hit deadlines, etc. If they do that, they won't have a bad reputation.
But it's riduculous to say that sellers don't have the right to reject a bad lender because you think it's unfair to the lender.
If the bank hires bad employees, they deserve the blame. When one of my employees screws up, I don't tell the customer, "Oh, it wasn't my company's fault, it was just that my employee is an idiot."
Bill Gulley - See Wayne's response above...I don't think anyone here is suggesting that the listing agent not present an offer. But a listing agent has experience and will give the seller their opinion, which the seller will often follow.
J - Not sure where you got my argument as "People should be forced to accept a lender, otherwise the lenders with bad reputations wouldn't get their fair share of the business"? I never said that.
Also, I am focused on fixing any misconceptions my company has. I don't believe we have a "bad reputation". I do this everyday with agents that I build relationships, educate, get business from, and deliver for. Also, my company wasn't singled out as the only lender the selling agent wouldn't accept offers from - they said any "Big Bank". So to me, there is a misconception about Big Banks not able to get this type of transaction financed which is not necessarily based on experience.
I also never said that sellers don't have the right to reject a bad lender because I think its unfair. I think its unfair to say that all big banks can't get this deal done, especially when the seller is trying to get the deal approved through their preferred lender.
Here is the other thing that bothers me. The seller is willing to take a financed offer from a mortgage broker, but what they might not ever know is that the broker may be going through one of the big banks to get the deal done. Ignorance is bliss.