How to Avoid Financing and Lender Problems

This summer has been especially interesting. Over the course of the past two months I have had two deals that ended without closing that should have never started in the first place. Why you may ask? In this case, financing from lenders.

Here is the story of my visit to crazy town. My seller received a contract on his home and submitted an offer on a new home within a matter of days. His buyer was pre approved through one lender and him through another lender. Keep in mind, these were preapprovals, not pre qualifications.

Both lenders encountered some “challenges” when the file made its way to underwriting. Three days before the closing, the lender for his buyer was notified that there was a collection that had hit after the conditional approval had been sent. It was for a medical bill that just appeared on their credit report when they did the final pull. One that the buyer maintained they had no idea what it was and that it was not theirs. Uh Huh. Hours later, my seller’s lender notified him that they would not be able to give a conditional approval due to some issues related to his debt to income because of school lo.ans for his wife..

I could not believe it. Double denial, both sides of a deal, within hours of one another. It would not have been so surprising had I just not been told by both lenders that they would be “no problem.” The deal was dead. Or so I thought. The lender for his buyer quickly suggested that the buyer would qualify if she could get a cosigner.

The lender assured me that this was going to be “no problem.” After consulting with my seller they agreed to keep moving forward. My seller, having been rejected already, was fortunate enough to have the seller of the property he was interested in offer to do owner financing in order to save the deal. My real estate “oh crap” alarms were going off, but I chose to remain optimistic. Many times I have seen rabbits get pulled out of hats to get deals done.

For an additional two weeks his buyer’s lender assured me that everything was sailing along, until it was not. We held out hope for this because my seller’s offer on his new home was contingent upon his home closing. Keep in mind that they were only looking for a 60K mortgage.

They owned the home they were selling free and clear and were set to walk away with over 130K when they closed. This was one of those deals that needed A to happen before B could happen. For three weeks the title companies, agents and customers were waiting for the all clear.

This one was a nightmare. I understand that nothing is guaranteed, but I have to say that the lenders are not serving their customers’ needs when they drag out the process until a few days before closing and then give a rejection or denial of the financing. I suspect that neither were truly pre approved, and that the lenders just need time to figure out how to make water into wine.

This type of creative approach does not serve anyone well. My sellers were led to believe that they “could get around” the school loan issue. Clearly this was never the case considering that the two lenders they contacted immediately after their first rejection told them that there was no way that they could “touch this one” and write the loan.

Long story short, the deal never happened. As a result, we all lost out. The lost commissions, the inspection fees, appraisal fees and nonrefundable deposits hit us all in our pocketbooks. My sellers were irate and had no remedy in the end. In general, I think most of us have legitimate fears when it comes to deals closing and do not feel any relief until we are leaving the closing with a check.

financing real estateAs an agent, I do my best to minimize risk with deals. I require pre-approvals and work closely with the lenders to make sure that I am not wasting my time or my client’s time counting on something that will never happen. I am diligent in making sure there is nothing funky going on with title, liens or pending legal issues that will prevent a sale before I even take a listing. Paranoia is a broker’s best friend.

As professionals, we can only operate with the information that we receive from buyers, sellers and lenders with regard to the loan process and the ability for a customer to get financing. I am taking what I can from this one and once again learning that this business is not for the faint of heart or the impatient. I have also reaffirmed my undying love and appreciation for the beauty of a cash deal.