Most contracts to purchase real estate are written with escrow periods of 30 to 45 days. These time periods allow a contingency period (usually 17 days) for the buyer to perform their due diligence on the property with regards to inspections, disclosures, condition, loan and appraisal. After the contingency period expires a buyer decides to move forward and purchase the house or may decide not to proceed.
While the above process has been started, the buyer/loan applicant begins to supply the necessary documentation to the lender or mortgage broker so that they get the loan approved. A copy of the purchase contract is also supplied to the lender, so they know when the transaction is scheduled for closing.
Closing a real estate transaction in Los Angeles County usually involves several steps prior to the actual recording and transfer of ownership. The loan documents are issued to escrow. Once they have been signed they are returned to the lender for review, which can take up to another 48 hours. The lender then will wire the money to the Title company and will be set up for recording the following business day. Notification of recording will usually come around 4-5pm in the afternoon.
The problem arises when escrow is set to close and the loan documents have not been issued. This is a frequent occurrance.
Now we have a home seller who is set to move and their furniture and personal belongings are in boxes. They may also have their new house transaction in jeopardy if they cannot close on their exisiting home. Proceeds from that sale with go towards the new purchase.
Most transactions will record within a few days after the scheduled close, but for the ones that do not, they can drag on for up to 2-3 weeks. To make matters worse, there is no information available on the loan status. Follow up calls go into voice mail, and calls are unreturned.
I am not a proponent of increased government regulation. However, I am tired of seeing home sellers foot the bill for an inept lender. Do the words "sub-prime" mean anything to you?
Lenders need to do a much better job of communicating the loan status. Will it close on time? If it is going to be late, how late? This is the Wild West in terms of accountability, in other words there ain't none. Sometimes it takes a swift kick in the old pocketbook to get someone's attention. Lenders should not be allowed to control a transaction without a financial disincentive in place. If they cannot close a transaction in 30 days, they should inform their client, otherwise they should be made to pay a per diem to the seller's for their tardiness.
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