March 22nd, 2013 at 7:41 pm
Further, while all contingencies? are important, some carry more risks than others.? For example, with regard to the loan contingency, our buyers are often faced with decision of whether to remove it on day 17 or earlier, even if they are not totally comfortable doing so.? In some cases, the buyer will refuse to remove the loan until they get a writing saying their application is approved, no matter what the risks are.? So, what is our involvement in this process and, more importantly, what should we be telling our buyers when they ask for advice?
First, and most importantly, we need to be clear with our buyers that, no matter what their lender or loan broker said, no loan approval is totally safe until the loan funds and escrow closes.? As you know, all loan approvals have conditions to them, often including the risk of a review appraisal.? ? In short, no matter what assurance you think you have, removing a loan contingency always has some risk.? Before the loan funds, we can never tell a buyer that they are 100% safe and that there are no risks that the loan will be turned down. Obviously, these risks normally do not occur, but they exist.? So, when asked we can never give a buyer total comfort.? We need to explain the risks that exist, letting them know that if they remove the contingency and the loan is denied, their deposit could be lost.? We also need to recommend that they talk to their loan representative and try to get as much comfort as possible.? Then, and only then, should they decide whether to remove the contingency.
Additionally, however, you also need to make sure your buyer understands the risks on the other side of the transaction.? After all, if the contingency is not removed, the seller may give a Notice to Perform and cancel the agreement.? Especially in a seller’s market like today, it is easier for the seller to find another buyer and they are therefore more willing to cancel and move on.? As a result, no matter how much comfort a buyer has about the loan, they risk losing the property if they refuse to remove the contingency.
As a result, when representing a buyer and being asked about this contingency, identify the risks and let the buyer make the choice.? Remember, our job is to provide information, not decide what our client is going to do.? So, give the buyer both sides and let them decide.? By doing these things, we protect ourselves and give the client all the information they need to protect their own interests too.
As always, please contact your manager with any questions you may have and they will contact the Legal Department if necessary.
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