This could have been an easy and sweet success story from beginning to end.  After he had been looking for different things in different neighborhoods, my buyer finally walked into the place that had it all: the right kind of building, the right floor plan, the right types of amenities, a convenient urban location in walking distance to his downtown power office.

The price was quickly agreed upon, the rest of the conditions as well.

A review of the condo doc revealed that the board of the 3-year-old, 97-unit building was taking the builder to court for some counts of sloppy craftsmanship or failure to fulfill warranty repairs.

We took an inspector with construction background to check out the list of alleged problems and violations. He explained that none of it was unusual or grounds for serious concern. So we weren’t worried, especially when we learned that the associated special assessment (most likely for legal fees and reserves) would be paid in full by the sellers.

The loan had been pre-approved, the appraisal came in fine. All contingencies could be removed.

Then, a few weeks later, totally out of the blue, a call from the upset listing agent.  Another unit in the building couldn’t settle. The lender, a big national bank and incidentally the same lender as ours, didn’t approve the condo because of the pending litigation.

Our loan officer didn’t think it would be a problem. My buyer was strong and likely had better guidelines.
Another two weeks, 20 faxes and 200 phone calls later, the same lender decided for good that my client wouldn’t get a loan, either. Sorry. Just like that.

Never mind that the suit might very well get thrown out. Never mind that most of the alleged “safety violations” had been repaired. Never mind that it wasn’t a suit against the building, but rather the building, or some forceful representatives thereof, trying to take care of itself.  A surely well-intentioned effort, but now it backfires.  Will nobody be able to sell their units here if they want to?

And, is my buyer in default?  Is he risking his earnest money (in this area is a substantial sum)?

No, said the title attorneys, because in the narrower sense, this can be seen as a title problem. (After all, it’s not the buyer’s fault, or anything we could have reasonably expected.)  They will have to let him go.

But—he doesn’t want to go. He wants the place! And the sellers want to sell it to him!

While a couple of loan officers from other lenders have offered to just try and submit the loan (and hope no questions will be ask), my favorite local mortgage broker wanted the cards on the table. He submitted as much information to his lenders as he could, talked to the condo board and their legal counsel, collected every part of the puzzle we could find. My buyer – an attorney himself -- found this to be a more comfortable approach.

19 days before closing, we’re keeping our fingers crossed.  God willing, there will be a way.

Anybody been in this situation?

Update on 6/24/2008.   The transaction closed yesterday.  For the new lender, no problem whatsoever.  In the end, the only negative was all the heartache we had over this, and maybe the fact that the rates for the buyer had slightly gone up since the first lock.