Are you having trouble closing the easy deals....

One thing that has never been an issue in my business and that is closing deals that are under contract.  In this real estate environment, even that which used to be so routine seems to be changing.

Let me explain.  Last month, out of the seven escrows (here in California we use an escrow based closing, not attorney based) that were open; five had problems within 3-5 days of closing.  Most of the issues were lender based, and not the usual buyer and seller last minute negotiations. 

One in particular has me on edge.  Let me layout the deal for you to see how the players (buyer and seller) were affected by this "lender" issue:

The buyers, a mid 30's couple with decent credit scores (the wife is in the 800's and the husband in the high 700's), who own their own condominium (recently paid off their existing mortgage) and savings in the bank in the excess of their 25% down payment.  The seller was a trust, administered by one of the siblings and also a beneficiary himself. 

The property priced in the mid 500's and appraised by the lenders appraiser for $60K higher than the accepted offer.  Upon the seller completing several small repairs (thermostat, faucets and door bell) the buyer asked for the lender to fund the loan for closing.  This request was made on December 22nd 2008, for a December 23rd funding and a Christmas Eve closing.  The lender requested an amendment to the instructions included a clause that all repairs were to the buyer’s satisfaction, which is reasonable.  The lender requested amendment was prepared by escrow and faxed and signed by buyer(s) and seller.

Upon receiving this document, the lender then demanded that the amendment was not adequate and that it needed to state that it would now cover the repairs noted in the purchase contract and that the buyer was satisfied of the repairs. 

By this time during the day, it is past the funding time of the lender and the funds must be requested again and changing the closing date to the day after Christmas Friday the 26th of December 2008.  The buyers expected to be in their new place by December 25th 2008.  They acquiesced and accepted that their lender was just being diligent and protecting their interest.

On December 24th, Christmas Eve, the lender requested that the sellers provide a clear termite report.  Now this is where the real fun started.  The termite report was completed and the work required was to be done by the termite company at seller’s costs, except that the work required was in the "common area" of the building and needed HOA (home owners association) permission to rip off the roof and balcony railing.   The management of the HOA approved that the work be done to local treat the termites and wait until normal roof work and balcony replacement to get the work finished.  The HOA put that in writing and the buyers were satisfied.  The lender said it was not enough and that they would not fund the loan for closing.  Now we have Christmas.  The day after, the lender was closed.  Saturday the 27th and Sunday the 28th, they were closed.  Monday the 29th, the buyers are truly upset.  The seller is upset and the escrow company is confused.

Wednesday the 31st of December, the lender still had not funded the loan.  Our calls back and forth, lender required amendments and a lot of shuffling of paperwork between buyer and seller left the buyer with such a bad taste in their mouths that they suggested that we pull the loan from the lender and since the rates had dropped, get a better rate from another lender.  This was 4 in the afternoon on New Years evening.

On Friday morning, January 2nd 2009, the lender went ahead and funded the loan (after the threat of the buyer going to another lender is realized with requests from the appraiser and mortgage broker for the buyer’s loan package).  The buyer can refuse the funds, but chooses to allow the deal to close on January 5th 2009 a full 11 days after the initial request.  What was the real hold up?  Did the lender run out of funds in 2008 and needed to push the deal into 2009?  Are the lenders being too conservative after the party they had over the last several years? 

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