My sale is getting sketchy - BofA shenanigans - advice needed!

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Submitted by permabear on October 14, 2010 - 4:10pm

I am in the process of selling my primary residence, and just got this from my realtor. I believe everyone is acting in good faith - the buyer made a solid offer, 10% down, and I trust the realtors. HOWEVER, I am also paranoid legally and financially, and fear this could lead to a horrible situation.

Since this is the buyer failing to perform, should I cancel as the seller and relist? Or try to accomodate? Advice needed please.

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Sorry to have to deliver this news, but there is going to be a delay in the close of escrow due to Bank of America not honoring their loan commitment. It appears that the delay will be 3-4 weeks while the buyer's mortgage broker arranges for a new loan. Meanwhile, to make things worse, The buyer has rented his condo, has no place to live and must move out. They propose a short term rental of your home ahead of close of escrow.

So, here is what it comes down to:

1. Buyer is asking for an extension of close of escrow date;
2. Buyer proposes to rent/occupy your home from the original close of escrow date (Oct. 19) until the extended close of escrow date (2-4 weeks later) and will pay your full principal, interest, taxes, insurance and HOA fees on a prorated basis.

We will need to know your exact monthy payment to your lender, so please call me at your earliest convenience to discuss.

Coincidently, this exact same issue is happening to me on another current transaction where I am representing the buyer. Bank of America approved my buyer, than yanked the loan at the last minute, so we are scrambling for financing right now and had to get an extension of close of escrow from the seller. B of A also did this same thing to one of my agents two weeks ago. Suffice it to say, we (and all of our agents) will not be allowing any of our clients to enter into transactions if Bank of America is the lender until further notice. They are an absolute mess right now.

Anyway, please call me when you get a chance and we can discuss in more detail. Thank you.

Submitted by jpinpb on October 14, 2010 - 4:17pm.

Anyone else that's interested in buying your place, i.e. back-up offers?

Submitted by permabear on October 14, 2010 - 4:33pm.

I think we could get one, although we did not accept any. We stopped showings because the offer was strong and my wife works from home with our kids, so showings were difficult.

I'm leaning towards writing a Notice to Perform (which they can't fulfill), and then relisting the home. If they get their loan in order, they are welcome to write another offer.

I'm not trying to be mean, but I can't imagine the nightmare if their subsequent funding falls through... and then I have strange people "renting" my place... who can't get a loan, and decide to stop paying "rent"... and I have to evict. It makes my head hurt.

Submitted by davelj on October 14, 2010 - 4:41pm.

Just an idea... you could charge them a large deposit - say a few months' rent - that they would get back on a pro-rated basis once the sale closed. That might mitigate some - but not all - of the hassle in case the funding disappears.

Submitted by Doofrat on October 14, 2010 - 4:49pm.

Why doesn't the buyer just put their stuff into storage and rent a suite at one of those corporate rental places?
To me, that seems like a lot of risk for you if the deal falls through, I'd want it sealed before people start moving in, maybe I'm just being paranoid?

Submitted by sdrealtor on October 14, 2010 - 6:53pm.

Sounds like you have a good buyer acting in good faith and you likely would be best served to let them get a new loan. Under no circumstances would I allow them to move in prior to the close of escrow. Too much can go wrong.

Submitted by LeaSD on October 14, 2010 - 7:01pm.

I agree with sdrealtor - bird in the hand with the current buyer, I would work with them on extending the escrow front BUT politely explain that you cannot enter into a short term rental that it is too fraught with potential conflict/issues.

Do you have the right to any involvement, verification from their lender/broker? I would extend escrow but with some "check points" to make sure things keep moving along.

ALSO - what is your living situation? If you have not moved out of the house and are going to have double rent anyhow - I would consider staying and/or leaving sufficient furnishings in case you DO need to go back on the market. Furnished homes show so much better.

Submitted by FormerSanDiegan on October 14, 2010 - 7:05pm.

I concur with sdr on not letting them move in.

My inclination is to give them time to perform in 2 week increments and advertise for back-up offers. BUT, that depends on how quickly you think you could sell it in today's market. We are in a slow period. How likely are you to get a similar or better offer between now and mid-January ?

Submitted by SD Realtor on October 14, 2010 - 7:20pm.

Agreed with respect to not letting them move in. Understand though that you essentially are starting over with regards to timelines. If the broker has to shop for a new loan you will need to reset the clock with regards to loan contingency and possibly even the appraisal contingency.

Second, I am concerned about the line of B of A not honoring the loan committment. I would ask for more details including documentation why they basically declined the loan. There needs to be some sort of reason behind the decline especially if you are this far in.

Another possible alternative is for you to agree to give them the extension, however you can state that you are concerned with their viability as buyers. That you will need some sort of compensation if they go through another 1-2 week period and get declined yet again. The fact that the are only coming in with 10% down means they are not going conventional as well. So maybe they pony up a little bit more of a deposit or make some of the deposit non refundable.

They probably will not bite on it. Also as slow as things were the past few months I am actually seeing a little bit more activity. However this may be confined to certain regions so I cannot comment on your area. It would depend on how things are where you are at, how long your home was on the market, how much activity you had, etc...

Submitted by paramount on October 14, 2010 - 11:24pm.

Having been in a similar situation (as a seller) I would say DO NOT LET THE POTENTIAL BUYER MOVE IN, NO WAY. When I allowed a potential buyer to move into a property they would not pay rent, stating that they were actually buying the property.

Also, I would not provide any of the requested info at all - you don't rent based on what you pay, you rent based on the rental market.

And once they are in, they can be hard to get out.

Reading your email brings back bad memories, and it's so typical realtor speak.

Submitted by scaredyclassic on October 15, 2010 - 7:24am.

not legla advice, but what about a rent contract with really strict terms in addition to the big deposit. something like, "in the event the sale of the house fails to occur, and the buy is still in the property living under the terms of this Lease, and it becomes necessary for the Seller to evict the buyer because the Buyer refuses to vacate, then the Buyer agrees that the Seller shall be entitled to liquidated damage sin the amount of $50,000.00. Witha big deposit and a big judgment hanging over their heads, they'd probably leave. maybe. unless they were real deadbeats. but if they were just looking for a free rental, they wouldnt agree to termsliek that. maybe. get your own legal advice.

Submitted by permabear on October 15, 2010 - 8:10am.

walterwhite wrote:
not legla advice, but what about a rent contract with really strict terms in addition to the big deposit. something like, "in the event the sale of the house fails to occur, and the buy is still in the property living under the terms of this Lease, and it becomes necessary for the Seller to evict the buyer because the Buyer refuses to vacate, then the Buyer agrees that the Seller shall be entitled to liquidated damage sin the amount of $50,000.00. With a big deposit and a big judgment hanging over their heads, they'd probably leave. maybe.

That's one of those things that sounds good on paper, but I think would be difficult to make reality. I had a band teacher back in high school who had a parent steal a whole bunch of instruments and sell them. He took the guy to court and the judge ruled in his favor, but the guy didn't have any money, so the "solution" was that the band teacher could go into the guy's house and take stuff of equivalent value!

I think it's easiest to just tell them that they'll have to stay in one of those temporary corporate housing places. I would rather avoid any type of drama.

Anyone have input on whether I should relist the house and get back-up offers, or even go so far as to cancel their offer and start over? I should mention my home is very desirable, ocean views, highly-upgraded, and it literally had offers on day one. The negative part is that we've moved out, so the house is vacant now (has really nice MLS pics, though).

Submitted by briansd1 on October 15, 2010 - 9:02am.

paramount wrote:

Also, I would not provide any of the requested info at all - you don't rent based on what you pay, you rent based on the rental market.

And once they are in, they can be hard to get out.

I agree.

*

I also don't see how this is a problem on the part of BofA. They can loan the money or not. That's their prerogative.

If the buyer barely qualifies for a loan that's his problem. And now it's also the seller's problem.

Sounds like some of us want the banks to have good underwriting but also want the banks to loan out the money easily when we need it. Can't have both.

Submitted by EJ on October 15, 2010 - 9:18am.

Convenient time to look for a new loan with the rates dropping so quickly.

I just closed escrow and thought I locked a great rate a month ago. Would have been nice to extend another month and start over now.

I guess all I needed was good sob story, with some distractions built-in (rent to me please, I have no where to live).

I would play hard-ball if I were you. Issue the notice to perform, put it back on the market and tell them to get a rental (corporate or whatever). With the low rates people's price ranges have increased. You might get a better offer.

Although I will say for me the loan process was not fast, underwriting took a while and I had to extend escrow myself (but not start over).

Submitted by SD Realtor on October 15, 2010 - 10:46am.

There is no problem with BofA. The problem is with the buyer or the home. Underwriting guidelines are not soft and squishy. When someone does not get a loan it is never the banks problem. While guidelines vary with lenders when somebody has to do start from scratch that can be a red flag.

The seller is inconvenienced now because of nothing that the seller did. So the seller should get something in exchange for the inconvenience. When a lender denies a loan the seller can request a copy of the denial letter to try to gain some insight as to why the buyer was denied the loan.

I would recommend that the seller does that in this case for a few reasons. First off to make sure that the buyer actually did get DENIED rather then conveniently just getting a loan elswhere. Second, if there was a denial then getting some understanding why is helpful. That way the seller can consult with his agent to discuss the probability of the buyer getting denied again.

As I said, this is a do over meaning the buyer will require the loan contingency timeline all over again.

It really is not that hard to understand.

Submitted by briansd1 on October 15, 2010 - 12:12pm.

SD Realtor wrote:
There is no problem with BofA. The problem is with the buyer or the home. Underwriting guidelines are not soft and squishy. When someone does not get a loan it is never the banks problem. While guidelines vary with lenders when somebody has to do start from scratch that can be a red flag.

Absolutely.

The title of this thread implies BofA did something unethical. I'm all for blaming the banks when they deserve the blame, but not in this case.

The problem all along was too much easy credit to unqualified borrowers.

It's just funny to me how sellers blame the banks if they can't sell; and buyers blame the banks if they can't buy. This problem, however, can be easily fixed with a downward price adjustment. ;)

Submitted by waterboy on October 15, 2010 - 12:30pm.

Although I personally wouldn't deal with BofA because of their size and typically higher rates, I highly doubt they have been approving loans then pulling them a few days before close.

Perhaps they approved a buyer for a certain amount then the other UW factors didn't pan out to get final loan approval.

Not that its 100%, but if they can't show you a pre approval from a new lender in the next day or two, then I would give notice to perform and place BOM

Submitted by faterikcartman on October 15, 2010 - 12:33pm.

If you let them in, good luck getting them out -- or out with your house in the same condition.

x2 on asking for the denial letter. For all you know they had a loan and then asked for lower rates more in line with what is currently available at the lowest level and they just backed out in hopes they'll get lower rates elsewhere.

I'm no expert on this, but I would get it back on the market and let them know you hope they're the ones who are able to close on it.

Submitted by ucodegen on October 15, 2010 - 12:51pm.

permabear wrote:
Anyone have input on whether I should relist the house and get back-up offers, or even go so far as to cancel their offer and start over?
Do the 'failure to perform' route. It makes sure that the 'T's are crossed and 'i's are dotted. The purchase was a contract that they failed to perform on. If you back out, it could be said that you failed to perform.

Once that is done, relist. If they are able to clear up the funding before anyone else gives you a solid offer, then they can buy it, otherwise go with the next buyer. - treat it as a business deal (which is what it really is). Time is also money in this case, and you are rolling into the RE 'dead months'(relatively speaking).

permabear wrote:
I should mention my home is very desirable, ocean views, highly-upgraded, and it literally had offers on day one.
Shouldn't be too hard to get another buyer. Allow some flexibility on price. You may not get what the original purchaser was offering, but you also have a time/money issue and probably a carrying cost.

Did you keep a record of other people who offered? You might want to check if they have funding/can complete their offer.

Submitted by permabear on October 15, 2010 - 1:15pm.

briansd1 wrote:
SD Realtor wrote:
There is no problem with BofA. The problem is with the buyer or the home. Underwriting guidelines are not soft and squishy. When someone does not get a loan it is never the banks problem. While guidelines vary with lenders when somebody has to do start from scratch that can be a red flag.

The title of this thread implies BofA did something unethical. I'm all for blaming the banks when they deserve the blame, but not in this case.

The problem all along was too much easy credit to unqualified borrowers.

Maybe, but I think it's also a case of the pendulum swinging too far back in the other direction. Lenders are now hyper-critical and will sneeze at anything that is not 100% perfect.

I spoke with the realtor in depth about WHY the buyer got denied. I don't have a denial letter yet, but I do believe the realtor is telling the truth. Bottom line, the person that is buying my home is in the TV business (a news anchor, actually) - and their employment is based on contracts. Their current contract is up w/i the next 6 months. Despite the fact that this particular anchor has approximately a 0% chance of not having their contract renewed, BofA balked.

In this case, I think BofA really is "at fault" - though just in the sense of being irrationally hyper-conservative. The realtor said they are escalating the loan w/i BofA to see if they can get a higher up to review it.

Submitted by waterboy on October 15, 2010 - 1:30pm.

Too bad angelo mozilo isn't still around

Submitted by briansd1 on October 15, 2010 - 1:52pm.

permabear wrote:

Maybe, but I think it's also a case of the pendulum swinging too far back in the other direction. Lenders are now hyper-critical and will sneeze at anything that is not 100% perfect.

I spoke with the realtor in depth about WHY the buyer got denied. I don't have a denial letter yet, but I do believe the realtor is telling the truth. Bottom line, the person that is buying my home is in the TV business (a news anchor, actually) - and their employment is based on contracts. Their current contract is up w/i the next 6 months. Despite the fact that this particular anchor has approximately a 0% chance of not having their contract renewed, BofA balked.

In this case, I think BofA really is "at fault" - though just in the sense of being irrationally hyper-conservative. The realtor said they are escalating the loan w/i BofA to see if they can get a higher up to review it.

I've seen too many foreclosures to not don't draw any conclusion on credit worthiness and wherewithal based on people's jobs. A nice income statement is fine, but a strong balance sheet is what's most important.

Plenty of folks with so called "deep pockets" have lost their properties to foreclosure that nothing surprises me anymore.

Submitted by sdrealtor on October 15, 2010 - 2:32pm.

Income statement is what matters not balance sheet when you are trying to get a loan. I just spoke with an agent who has a buyer with $10M in the bank but they cant get a loan because they are retired and show almost no income. Its an extreme example and they can pay cash if they want but it makes the point.

Submitted by briansd1 on October 15, 2010 - 2:52pm.

sdrealtor wrote:
Income statement is what matters not balance sheet when you are trying to get a loan. I just spoke with an agent who has a buyer with $10M in the bank but they cant get a loan because they are retired and show almost no income. Its an extreme example and they can pay cash if they want but it makes the point.

Two sides of the coin.

Income is the cash flow to service the debt.

Networth is the wherewithal to tough it out if the income is reduced or lost.

And downpayment/equity in the asset is the incentive not to walk away.

If I were lending out my own money, I'd look at all criteria.

Submitted by sdrealtor on October 15, 2010 - 3:00pm.

But they dont care about assets beyond a few months reserves

Submitted by permabear on October 15, 2010 - 5:47pm.

Thanks for all the advice. Here's what I ended up doing as of now.

The buyer got initial approvals from BofA higher-ups to approve their loan. We've agreed on an addendum to extend escrow by 7 days. They're going to pay me a set fee per diem for each day until escrow actually closes, to cover my costs (so if it actually takes 5 or 9 days, I get 5 or 9 days additional payment).

In addition, I sent them a Notice to Perform with 48 hours to remove all contingencies. They have stated they will do so, so that their earnest money deposit is now losable if their loan falls through again. I'm sending them a Notice to Perform for completeness sake.

It seems like a reasonable compromise, while still allowing me recourse. If they fail to fund their loan and close by the new escrow date, I have the option of sending them a Demand to Close Escrow with 72 hours notice. If they are unable to close at that point, I'll keep their earnest money deposit and relist.

Submitted by UCGal on October 16, 2010 - 12:28pm.

Coming to this thread late and after the fact.

What struck me - they want to rent at YOUR costs... I'm not sure if your sales price is higher than your purchase price - and chances are your prop taxes are lower than theirs will be... Why should they benefit by renting at *your* costs... not what their costs *will* be.

My friend was in this situation in the 90's. They were selling for 40% higher than their purchase price. They agreed to rented back to the buyers at their costs... and then the buyers dragged their feet getting the paperwork for the mortgage done. Why should the buyers be motivated since the rent covered the sellers cost - but was a lot lower than the costs when they'd purchased. My friend had to file an eviction notice to get the buyers motivated to get the loan.

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