No matter how smooth a real estate transaction may be going, at some point somebody or something is likely going to try to screw it all up. It’s one of those universal real estate laws when trying to close an escrow. There are just too many parties involved in the whole process, many acting independently with interests other than the transfer of a property between a buyer and a seller.
There have always been the occasional unexpected surprise or delay between the time the seller accepts a buyer’s offer and closing but they are now happening with more frequency. The result is more listings are designated by our MLS as “B.” They are “Back on Market.” The house was a pending sale “PS” one week and bingo, “B” back on market the next. Either the house or the borrower failed to qualify or with a short sale the buyer simply got tired of waiting for a response from the lender and walked.
It is a mistake to believe that everyone involved with a real estate transaction wants it to close. Buyers, sellers and their agents may have incentives to close a deal but often moving an escrow forward is controlled by others who have different agendas. Too often the emphasis today is on”form over substance.” As an example, back in the day a lender’s objective was in making loans. They over did that a bit with excessive exuberance. Today, however, making loans is secondary to their compliance with the Dodd-Frank Act.
Fortunately, despite all the gotcha obstacles, most experienced agents guide their clients through the homebuyer process successfully. Occasionally their best efforts are not good enough.
Mary is an entry level bank employee with the title of “Quality Control Officer.” Her job is to run a last-minute credit report and employment check on every borrower as soon as possible after the borrower signs their loan documents. Mary is looking for any new credit lines that the borrower has opened that may negatively affect the borrower’s debt ratio. A routine check revealed the buyer had two new credit inquires. She took the newly discovered information to the funder who was preparing to fund the loan. The funder stopped the lender from wiring funds to the title company until an investigation was conducted.
As it turned out, the borrower had purchased a new refrigerator at Sears and window coverings at Lowes. Both stores were offering discounts if the borrower opened a new credit account and purchased the items on credit. The newly combined debts were enough to disqualify the borrower from the loan. The delay, while attempting to resolve the issues, exceeded the contractual time period for closing. The REO sellers would not extend the time and canceled the escrow.
Bill, a local contractor, purchased a distressed REO. The property was in poor condition and Bill spent four months and a considerable amount of his money-making repairs and remodeling. When completed, the home looked like a model. During the first 48 hours on the market the house had 15 offers, 12 over the listed price. The seller accepted the highest offer and opened escrow. The appraisal is often the most common deal killer but the appraiser was impressed with the upgraded features that easily justified the value. Two weeks from closing, however, the lender called for a second, review appraisal.
The lender’s investor required a review appraisal because the seller was flipping the house for more than 20 percent of what he had paid within a year. The lender’s instructions to the review appraiser were: “Evaluate the subject property for possible inflated value. Comparables should reflect declining market values.” Not surprisingly, the second review appraisal was substantially lower than the first. The buyers were forced to pay another $450 appraisal fee and had to accept the lower valuation which changed their down payment and loan amount.
No one had actually seen the buried fuel tank. The adult children had inherited the house after their grandfather had passed away. They thought they remembered grandpa filing up his old Ford tractor with fuel from the underground tank someplace near the apple orchard. Was that something worthy of a disclosure or an item of no consequence? Not having actual knowledge of the prior or current existence of the underground tank they chose to ignore the issue.
A neighbor was more helpful. While the buyers were visiting the property one day, they met the neighbor who had a vivid memory of the old fuel tank and a few other skeletons that she knew about the property. According to her, grandpa had blasting caps and dynamite that he used to remove tree stumps and then there was that old abandoned mine shaft that the mule had fallen into.
The sellers declined the buyers request for a Hazard Material Survey and offered to refund the buyers earnest money deposit and cancel the contact. The buyers did not want to cancel. They wanted the property. Negotiating deteriorated and the buyers reported the potentially dangerous situation to appropriate federal and state agencies that were eager to go digging around the property looking for hazardous materials and explosives. None were found but the Environmental Protection Agency has now listed the property as a “property of interest” and that must be disclosed to any interested parties.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website at kencalhoon.com.