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Is the commitment date just as important as the settlement date?

yes

This has always been a problem and debated amongst the real estate industry and mortgage industry for eons. I know realtors that can be stuck on this debate and upset when lenders don't meet the commitment date. I know some lenders that just don't care at times, thinking that as long as they meet the settlement date, things will be fine.

So, who is right? Let's break this down some.

Commitment date : An agreement or pledge given by a certain date stating a guarantee for financing.

Settlement date : The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller. Definition in context

The commitment date is there to protect both the seller and the buyer. Each state is different on the laws if a commitment date is missed. Some agreements of sale or purchase contracts have a written clause for an automatic extension if the commitment date is missed for any reason.

Why can this be a problem? The lender is suppose to supply a commitment letter by that commitment date. This letter states that the lender has approved the buyer for that specific loan program that was applied for in purchasing the home. Then there is usually conditions mentioned that have to be met and cleared in order to finalize this approval to buy the property mentioned in the agreement of sale.

If the commitment date is not met, it can give concern and worry to the seller that the buyer might not be able to buy their property. And if it is not met, in many cases, it allows the seller to put the property back on the market. This can create a large problem at times because there are many factors that could cost sellers and or buyers a lot of many. Some of these reasons could be :

Change in the market. Prices of homes either raising or lowering.

Interest rates moving higher.

Appraisal fees, inspection fees, and anything else paid prior to the sale of the home.

The non sale of the home could be a domino affect. Affecting other buyers and sellers down the road.

You need a loan officer that takes the commitment date seriously and is on top of things. Someone that is aware of the date and keeps both the selling agent and listing agent involved in case there are problems. This is called communication.

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Posted by Jeff Belonger -- The FHA Expert.com -- FHA Loans -- FHA mortgages - USDA loans on 08/12/2007 11:36 AM

Comments (33)

commitment date, settlement date, agreement of sale, denial letter, approval letter

This post has been included in New Jersey Information Camden County, NJ Information Cherry Hill, NJ Information

33 Comments on Is the commitment date just as important as the settlement date?

AUG

2007

I think the settlement date is more important, at least for tax purposes.

I think the only other important one is the property identification date (for 1031 exchanges)

AUG

2007

Mystery guest..... my bet would be that you are an AR member. And why you won't show yourself? In any case, I never said that the settlement date was not important nor did I state that the commitment date is more important than the settlement date.

You are right, the settlement date is important... but more important? This is the problem with many loan officers. They say.... "who cares, as long as I meet the settlement date." And many times, the settlement date is not met on time or ever, because nobody knew if their were any problems, because they didn't have the commitment letter.

Lastly, why bring in the settlement date is important for tax purposes or for the 1031 exchange? If the settlement doesn't happen, none of what you mentioned would be irrelevant. Overall, in my opinion, your comment is lost in space....doesn't make sense. And I wonder if you actually comprehend the whole process, from start to finish, in regards to the mortgage process.

The settlement date is not more important if the seller is harmed becasue the lender and the borrower can not meet the commitment date and never gets to the settlement. It is our job as realtors to protect our clients and if that means holding the buyers lenders feet to the fire then so be it.

I was given good advice early on: You never want to be out of contract. If we are getting close to our closing date and things aren't moving along as they should, I do an addendum to extend escrow however long we think it may take, unless it looks like buyer or seller can't perform.

Good post,

Fran

Randy.... you hit the nail on the head. Something that I didn't mention this post. What tends to happen when the commitment date is missed is that sometimes the terms of the loan are then changed. This could be the rate and or the fees. And then the buyer is sometimes pressured into something they don't want. And if they don't go through with it, then the sellers time has been wasted.

It is not only the realtors job to stay on top of this, but also the loan officer. thanks for your feedback.

Fran..... addendum's are great at times, but they can sometimes delay the inevitable and cost people more money down the road. This is when you need a lender to stand up and say, we can't do the loan.

In any case, thanks for your input and for the compliment.

Fran learned the way I learned, and it has served me well all of these years.

But frankly, there is no excuse for a lender to know the settlement date in advance, and then think he's absolved from having to meet it, too.

Watch how fast I look elsewhere next time. I do not cut slack on this one.

If the loan commitment date is not met, the buyer is in breach of contract here. We would anyone one of us recommend a loan officer that puts clients in that situation?

Jeff-A loan officer following all of the financing related contingencies in the Hawaii Real Estate Purchase Contract is as critical as the buyers/sellers agents following the real estate related contingencies. All timelines are important in the Purchase Contract and missing something could be a deal killer. I have no tolerance for people that cannot follow a timeline and will never recommend their services if they fail one time.

I left a title company recently because they weren't reading the contract, left out sellers concessions. That is why I like to work with everyone touching the transaction to make sure we are all clear on the dates. The committment date is extremely important as our sellers don't start packing until that is removed.

Bill.... you do not cut slack at all on this one? Do you know things happen in life? I agree with the fact that the settlement is important. But you confused me with your statement. "there is no excuse for a lender to know the settlement date in advance, and then think he's absolved from having to meet it, too"

I am just trying to understand your statement, that's all. All I can say, sometimes things do happen that is out of everyone's control. I will admit, many loan officer's though do not pay attention to the commitment date. Thanks for your input.

Randy..... I think just about in most states, the buyer can be in breach of contract if the commitment date is not met. But it also depends on what is mentioned in the contract. Sometimes lawyers put extensions already in the contract if the commitment date is missed.

David.... I agree, all timelines are extremely important. I agree that we should be critical of this. But I also say, let's not jump to conclusion sometimes in regards to if something is not met. I also believe in communication to as why. And also if the loan officer or lender will give good reason. You can usually tell if the answer is bogus or not.

Missy.... I am confused. The title company left out seller's concessions? You mean when they did the HUD - 1 settlement statement? I would love to know this because I already have an answer for that one. But yes, the commitment date is important and it's sad and scary on how many loan officer's don't even pay attention to this date. Or make their processor aware of this date.

Jeff, in Michigan the title companies put together the Broker Statements and the HUD and all the docs to be signed at Settlement.

I had sellers who were buying a house from us too. Their lender need a pre-HUD statement so they would know how much the clients were going to need to bring into closing on the new house.

So the title company put together a pre-HUD and when the seller and future buyer and I went over it they had left out the 3% my sellers were giving to the new buyer of their condo.

Jeff,

I agree with Randy, if they don't meet the commitment date, they would be in breach, or at least could be... Who would want that?

Tom Weiss

Great post! It really stimulated a good discussion.

In our new purchase contract we do have a closing date extension, but the loan is specifically excluded as an automatic reason for the extension of closing date. If someone added the loan as a reason for extending that would be a huge red flag that this offer has a serious problem. In either scenario the loan officer would be the weakest link in the transaction and someone I would avoid in the future.

Our contract specifically has a financing section that lenders are to follow....and recently changed to NOT give lenders any leeway with our timelines and extension specifically excludes reasons for loan process. I would not use a lender who holds the timeline as something not to be taken seriously. If the financing contingencies are not met there is a specific clause that the seller has a right to back out. Now why in the world would we want a loan officer/lender that cannot perform under timelines? There should be NO reason why a time frame is not met if everyone is working together from the beginning. And so the importance of working with an LO who knows OUR contract and able to work with us so the transaction goes through smoothly.

Your last statement is the KEY> Communication.

EVERY date in a contract is important. It represents a meeting of the minds between the buyer and the seller and any missed date (without an signed extension) means you no longer have a contract.

I changed companies because my old company didn't put an effort to make dates.... crazy

Missy..... I alway review my HUD-1 before settlement also. I usually review this before the buyer or anyone else reviews this. This way I can let the title company know if anything was missed. I would say about 5% to 10% of the time that I need to point something out. The two biggest would be if it was an FHA mortgage and or the seller's contribution.

Tom W. ..... I agree and my main point was that so many just focus on the settlement date.

Randy...... what I meant about commitment date extensions is that I have seen some contracts with 1 to 3 day extensions already written in. In the state of New Jersey, if a lender misses the commitment date and that there is not clause stating that no extensions are given, then law supersedes. The law is not stated on the contract, but states if a commitment date is missed, there is an automatic extension. Again, only if it says that there will be no extensions granted or allowed.

Thanks for the compliment. I was hoping that this would have had more of a discussion. Especially by some other lenders other than Tom Weiss and Tom Burris.

Sally...... I agree, a lender that when looking at the contract when they first receive it and doesn't look at the commitiment date to see when it is, can be scary. And yes, communication is so key. Thanks for your feedback and input.

Jay.... you hit the nail on the head. Every date in the contract is important. So true, yet so underrated at times.

Tom B. ..... I remember you stating this in another comment of yours a few days ago. I just don't get that, especially from a company. I can see a loan officer who doesn't take the dates seriously at times, but a company?

I just realized that this got featured. Thank you to the moderator that featured this. Thanks.....

Jeff - This is a very important discussion. My philosophy is to have the settlement be before or on the day commitment date expires. There are times the settlement date is extended, however that is in the case when a contingent condition is not met by the buyer, Realtor, etc. that is beyond the control of the lender. That said, that circumstance should be a very rare occurrence if a Realtor is working with a good LO. A good LO front loads the process by taking a good and thorough application and using the interview to investigate possible issues early on in the process. I always tell LO's during my speaking engagements - It's better to have 15 days instead of 15 minutes before closing to handle and resolve and issue that could have been discovered early on. This is why it's important for Realtors to also partner with their lending sources early on.

Jeff, I know you are on the same wave length.

Contracts are written differently in each state and within markets as well. Both are important but if the first is missed it is likely the second will be missed too. I put homes back on the market as soon as the first date is missed......and the buyer moves into the aggressive mode with the lender and I do what I do....sell homes. Nice post.

Usually the commitment date is ahead of the settlement date so that the seller can begin moving out. If the seller agrees to extend the commitment date, he'll often want to also extend the settlement date.

Thank you Jeff...this is one of those stressors we(as Realtors) have no control over....other than nagging. To have to go back to a Seller and their agent to ask for an extension (it's not automatic in NH) sets up a lot of mis-trust. Or in a worst case scenario...a contract failure.

It is VERY important (congrats on the feature)

Tony.... I would think that this could be a very important discussion. It must be that end of summer thingy, that many people are enjoying the heat. ;o) I totally agree that you should have 15 days Overall, we do agree for the most part. You did lose me though on your philosophy comment. To have settlement be before or on the day of the commitment date expires? In any case, thanks for your input.

Gary..... yes, contracts are written different on most states. I wrote about this about 9 months ago. You are correct in stating that if the commitment date is missed, in many cases the settlement date would be missed. I know a few realtors that keep the house on the market also.

Sharon.... In some cases, yes, if the commitment date is extended, so will the settlement date be extended. Again, I would have much say in something like this, depending on why the commitment date was missed in the first place. A lot of it has to do with the type of mortgage also. thanks for your feedback.

Joan.... yes, this is very important. Still wondering who the mystery guest was and why they made that statement. And you are correct, there is no guarantee that there would be extensions. But for the most part, if you have a good loan officer that is good at communicating, there should be no reason why this scenario couldn't move forward. Especially since the seller still wants to sell the house. Unless they changed their mind and just decided to fold.

Good information, Jeff. Other than not getting business again or getting bad rap, there seem to be no repercussions for missing the date on the part of the lender. The parties to the contract are the ones that suffer - the buyer risks the deposit by breaching the contact, and if closing moves back a day or two or more, what can either party really do at that point? Yep one can sue the other, but they both lose out.

Absolutely the lender needs to know and pay close attention to the dates, and it is our job to check in regularly and make sure things are happening as they should so we can help circumvent problems or prevent missed dates. A reliable, competent broker will keep us posted on what is happening without needed us to nag.

Jeff

The wording in my contract makes the commisttment date very important. If the seller requests the committment letter in writing the buyer has 5 days to provide the committment letter. The joke is that the committment letter can be supprlied with conditions?

AUG

2007

Great post Jeff! I believe the commitment date is a VERY important piece that many loan officer just use as a guidelines. No matter what, the loan officer is responsible for providing a commitment or denial BY that date listed in the contract or they could cause their buyer to lose their earnest deposit. Also, it seems that different markets and what is considered "common" can make a difference in commitment dates. Some realtors act like it doesn't matter, some will be watching it like a hawk. For loan officers, it shouldn't matter whether or not your realtor is asking for it...like you said, it is the loan officer's job to follow the contract as well!

Jeff D. ...... you are absolutely correct in stating that there isn't much of a repercussion except that they wouldn't get business anymore. Many of us agree that the lender needs to pay attention to all dates. Thanks for your feedback and for your input.

Rebecca.... yes, the commitment letter can be supplied with conditions. But depending on the type of loan, for the most part, this is not bogus. What can be scary is that some loan officer's have access to these commitment letters and can send out their own. Now, did an actual underwriter look at this? Probably not.

Reading what you wrote about having 5 days to supply the commitment. Is this 5 days from when the commitment was due? thanks

Leah..... as many of us have mentioned, yes, the commitment date is very important. What happens here is that there are many loan officers that aren't experienced enough to understand what the commitment date means. Thanks for the compliment.

I take the commitment date very seriously since I put my client at risk if I don't meet it. However, if I think that the date is unrealistic from the beginning, I call the attorney and the Realtor so they are aware. In most cases, the attorney recognizes that it's too short and will push it out with agreement from the other side. Have to be proactive on this. In cases where we have a reasonable amount of time and something happens where I think we'll be late, I again call the attorney a few days before. That's of course better than asking for an extension at 3pm on the commitment day. I usually don't have any problems getting extensions if I need them. The parties have to know that you're working hard and the delay is not due to inaction, but to turn times, change in the loan, etc. this is one of my first blogs so excuse me if I'm a bit long winded.

Well done Jeff. As a loan officer commitment date is "my" closing day. That way I make sure everything is to title in plenty of time

Oh does this hit home with me.... I got an email this week that states the lender will not be able to close on time because it has taken on a lot of new loans.... I wondered why should this be my seller's problem... closing day is approaching.... and we shall see what this brings

Janet..... it's good to see many that take this seriously. It is amazing on so many broken promises that do happen. Or those that don't pay attention to these dates. Thank you very much for your detailed input.

Joe.... wow, that could be a little too soon though, sometimes. It all depends on how quickly contracts are drawn up, when the commitment date is, and when the settlement date is. Thanks for stopping by and for the compliment.

Thesa.... ouch.... ;o) Glad it does. a lender told you that they are missing the settlement date because they have taken on new loans? Unacceptable!!!!! Question...how long have they had the loan and did you get the commitment letter? thanks

Hi Jeff, Thanks for some good information. Often, the commitment letter goes directly to the purchaser. Since real estate agents don't see it, there is a tendency for us to focus primarily on the settlement date. But if the commitment date is not met, your post seems to indicate the likelihood of the settlement date taking place becomes questionable. Which...makes a lot of sense.

Hi Jeff: I think I tend to go the same way as Lola, although I always check in with the lender about 10 days prior to closing to verify where we're at in the process so that if there's any glitch to be caught there's enough time to fix it.

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