Dot your I's and Cross your T's in this market

With all the ups and downs of the financial industry there are a few things to keep in mind when you are submitting or accepting an offer on a home. We had a problem arise recently at closing that really threw a kink in our buyers purchase. Our buyer had been searching for a home that she liked and finally find "the one" and decided to make an offer. The offer was accepted and the loan package was submitted into final underwriting. While the loan was in final underwriting interest rates took a significant drop, we went over this with the borrower and she decided it was ultimately in her best interest to lock in her interest rate while rates were low. The loan flew through final underwriting and we ordered the buyers loan docs. The sellers went in to close and found what they say was a significant surprise. They were 90 days late on their mortgage and their interest, penalties and fees and taken up every ounce of profit that they were going to make on the sell of their home. Not to mention they were quickly reminded that they had a pre-payment penalty. Not only did it eat up every ounce of profit but it made them short to close. They were bringing in money at closing just to sell their house. It gets worse, they were bringing in money and that was using an old payoff (60 days old) that the title company had ordered a while back. The title company needed to order a new payoff and waited until the last second to do so. The current lender on the home said because the home was behind on payments that they would take 10-15 business days to process a new payoff.

The sellers new they were bringing in money but they didn't know how much. If they had the extra money laying around they surely wouldn't be 90 days late on their mortgage. The next thought by the sellers was "who else can help chip in"? Obviously their first thought was their agents commissions. The sellers realtor decided that he would chip in his commissions to cover as much of the expenses as he could. He actually was planning on giving away the farm and making nothing on the deal. While the agents were battling this I realized I had a bigger problem of my own. I had a loan with a locked interest rate where the lock was going to expire before the new payoff would even arrive. We could not close until the new payoff arrived so I had some major obstacles that I had to overcome. Getting the seller to pay for the lock extension was obviously worthless because they didn't have money to pay their mortgage so how could they pay for the buyers lock extension. I was able to negotiate with my lender and get an extension with no cost to the buyer or seller (because I paid for it). I was more worried about whether the deal wouldn't even close at all because of the sellers predicament.

Those that know me know that I have some experience in the REO market. I told the sellers and their agent that I would call the current lender and see if I would be able to negotiate the prepayment penalty and/or some of the late penalties and interest because I didn't want to see the sellers agent and possibly the buyers agents paychecks diminish. I was told that that idea was a lost cause by the title company because they already tried that. I decided to call the lender regardless and spoke to their loss mitigation department because if this sell failed that's where this home was headed. I was able after several tries to track down someone that actually cared about this home not going into foreclosure status. I explained the situation and they actually worked with the current owner to remove enough fees and interest to make it so the current home owners were not short to close. We ended up closing the loan and the buyer, seller and both real estate agents were extremely happy. I was very happy because my client was ecstatic about owning her first home.

I chose to write about this particular incident because it could have been a deal breaker. It also could have been prevented if the seller and their agent had taken certain precautionary measures before hand. I encourage every listing agent to order a payoffs on their sellers homes just to make sure the numbers are going to work. You may not know if they are behind on their mortgage or have a prepayment penalty and these are not things that you want to find out at the closing table. If you have similar stories or other stories you would like to share, please do so. I hope this information was helpful and that it could possibly save you a deal in the future.