March 29th, 2011 at 11:16 pm
More and more lenders are requiring a Review Appraisal just prior to the close of escrow. In some cases, the Review Appraisal comes in under the original appraisal, and the lender subsequently pulls the funding. If all of the contingencies, including the Loan Contingency, have been removed the buyer forfeits his/her earnest money deposit (EMD).
There are two methods to protect the buyer in this scenario. First, and most obvious, check the box under Loan Contingency Removal (contained in RPA paragraph 3 H(3)(ii) ). This is clearly the best safeguard to protecting the EMD as the Loan Contingency remains in effect until the loan is funded. HOWEVER if the seller counters this out (most often they do), by further incorporation and understanding of the mechanics of 3 I (Appraisal Contingencies), you may help to protect your buyer’s EMD.
Under RPA paragraph 3 I, the Agreement is contingent upon a written appraisal. HOWEVER, if you do not check the second box contained in APPRAISAL 3 I, buyer’s removal of the loan contingency is deemed removal of the appraisal contingency. Checking the second box in 3 I gives your buyer 17 days (or __) days after acceptance to remove the Appraisal Contingency. By placing an increased number of days in 3 I to allow time for a Review Appraisal you will help protect the buyer’s EMD.
The worst case scenario for your buyer would be that the seller counters these two options out. If seller does counter these two contingency options, the buyer should be made aware in writing before they remove all contingencies that a Review Appraisal could jeopardize funding which may ultimately result in the forfeiture of the buyer’s EMD. If the buyer elects to move forward after your warning, and subsequently forfeits their EMD, you have done everything you could to protect and warn the buyer, and they will be precluded from holding you responsible for their EMD loss.
If you have any questions please do not hesitate to call.
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