Democrat real estate columnist
Every once in a while, agents will get themselves and their clients into a black hole where they canÕt escape. Stuff happens that is beyond the control of mere mortals when dealing with people and properties. At times, each strategic move seems to speed the transaction further into the abyss.
They were first time homebuyers, with little cash and too much consumer debt Ñ but they wanted to buy a $150,000 bank REO manufactured home. I should have known better. Manufactured homes on foundations are tough to finance and credit challenged first time buyers can require months of counseling to place them in a position to qualify for a loan.
But like most real estate agents, I have a healthy opinion of my abilities. Besides, good agents are problem solvers. We plan for the unexpected, are skilled negotiators and with our win-win attitude we can solve any problem. (Bunk!) So with my positive attitude and their $500 earnest money check, my clients made an acceptable offer on their dream home and my worst nightmare. That was three months ago.
Each morning somewhere between three and four oÕclock I wake up thinking about how to move this transaction forward. How could I have been so stupid in putting my trusting clients and myself, into this situation? I would have gladly traded the lousy $3,500 commission for a good nightÕs sleep. As with airplane crashes, itÕs never one thing that derails a real estate transaction but a series of things all going terribly wrong at the same time.
The first sign of engine trouble was when FHA changed their loan guidelines requiring higher credit scores for borrowers. That happened three weeks after we opened escrow. One day I had a letter of pre-approval from a reputable FHA lender and the next day we had zip. While FHA insures loans meeting certain underwriting standards, private investors purchase these FHA loans. They have their own set of minimum credit requirements, which are often more stringent than the FHA. When FHA bumped their minimum credit requirement, the investment community went a step higher. The loan got declined and my clients and I were searching the skies for another lender. This transaction was like an airplane stalling. Our engine was still going but our airspeed was not sufficient to sustain lift.
Then we started experiencing extreme turbulence. We found another lender but the interest rate was higher. Although FHA will insure loans on manufactured homes with a permanent foundation, investors arenÕt as enthusiastic. The default rate is higher on manufactured homes. Subsequently, investors will either shy away from financing them entirely or charge a higher rate. Then another engine sputtered and died. After three weeks into processing the loan the mortgage broker called to say that the southern California lender where they had submitted the loan, closed their office and terminated all their staff. The status of the loan was unknown. Now we were flying blind without navigational instruments.
After another three weeks and another contract extension with the seller, we finally found a third lender who approved the buyers and the manufactured home. Naturally, their approval was subject to a ÒfewÓ conditions. Lender conditions will break a loan. A borrower can be pre-qualified, pre-approved and have their interest rate locked and a closing date set but until every approval condition has been satisfied, the loan is flying on fumes. I have seen poorly documented loans with as many as 25 underwriting conditions. This loan was superbly documented and had 31. All had to be cleared by the closing and contract expiration date within the next three days.
At that point I should have grabbed my parachute and exited the aircraft. I should have written a personal check to the borrowers reimbursing them for the appraisal and whole house inspection, made my apologies and wished them better luck with their next broker and jumped. But being the ultimate problem solver and supreme negotiator, I got another extension from the seller and went to work on clearing the conditions.
Every manufactured home has a HUD metal plate with its serial number permanently attached. Every manufactured home that is, except this one. One loan condition was to locate the decal or equivalent information that was long since removed by some previous owner. Another condition was that a structural engineer inspects the property to insure it was on a satisfactory foundation. I argued without success, that the whole house inspector, pest inspector and appraiser and county building department had certified it was on a foundation. A structural engineerÕs report would take another week and cost $400.
The property was connected to public water and so stated on the appraisal but the lender required a ÒcertifiedÓ letter from the public water utility to that effect. Naturally, the water utility company didnÕt provide ÒcertifiedÓ letters.
There were some appraisal conditions that normally would be easily handled between the broker and the appraiser with a phone call.
New federal regulations now require the process through the appraisal management corporate offices in Des Moines, Iowa.
ÒCould you give me a time frame?Ó I asked.
ÒSorry, we only respond to written requests.Ó they said.
Then the buyerÕs called to say that the gift money they were promised by mom and dad may not be there. There were some family financial issues and the buyers may need me to talk with their Uncle Bob about giving them the down payment.
Another three weeks went by and I finally had all the conditions cleared by the lender and had Uncle Bob springing for the downpayment. The lender would finally issue loan documents. Our plane was badly damaged but on final approach. But wait, there was just one more condition! Since these were first time buyers the lender would require them to complete a homebuyers educational course at their office in Sacramento every Wednesday for two weeks. (This column is being written at 4 oÕclock in the morning.)
Ken Calhoon is a real estate broker in El Dorado County. He can be reached at www.kencalhoon.com.