How Flimsy is YOUR Loan Commitment and how much could it cost YOU?

Real Estate Agent with Coldwell Banker Hobin Realty, LLC - Hampton & Rye, NH, USA

It's no secret that the mortgage industry is in trouble... we are hearing about it on a daily basis through our favorite media outlets. 

As with most things that we hear about in the news, it's just more bad news UNTIL... we have a personal experience that hits home.

Recently, I wrote about some trouble that we were having with lenders not wanting to keep us informed on the lending process and turning down buyers that should have (and eventually did) qualify for financing.  For more of a background, please read those previous posts:  

The facts are that the market is different today as compared to a few years ago and to survive, you must adapt. We must know the possible pitfalls and prepared to avoid them. 



Here in New Hampshire, our Purchase and Sales Agreement includes a financing contingency clause.   Most folks are familiar with this clause and understand it to mean that if they are unable to obtain financing that they will most likely have their deposit returned.  Well..... not so fast.  What if you have a conditional loan commitment?

If you are not not sure what a conditional commitment is... the easiest way for me to explain it is that your loan can be approved pending certain conditions.  Generally conditions are cleared as the loan is processed, so initially you will have lots of conditions and as the underwriters process the loan they clear conditions.  By the time your commitment letter is due, you don't want to see any conditions that could cause your loan not to close.  In other words, if you are uncertain as to whether or not a condition can be cleared, you are at risk that your loan may not close AND you (or your client's) earnest money may be at risk


 In New Hampshire, our Purchase and Sales Agreement contains wording that you MUST understand:

  1. The existence of conditions in the loan commitment will not extend either the Financing Deadline described below or the closing date.
  2.  If SELLER opts to treat the financing contingency as waived or relies on a conditional loan commitment and BUYER subsequently does not close in a timely manner, SELLER can then declare BUYER in default.  SELLER then, in addition to the other remedies afforded under this Agreement:
    (a) Will be entitled to all deposits in accordance with the Deposit Procedures; and (b) This Agreement will be terminated; and (c) The premises may be returned to the market for sale.

In layman's terms:  The seller takes the risk before the loan commitment date and the buyer takes the risk after the loan commitment date. So, make sure that you are very careful when you review your commitment letter.  If there are conditions referenced, make sure you get the list of conditions and review them carefully.  One BIG RED FLAG is receiving a loan commitment with an appraisal condition.  In our current market, an appraisal can certainly come in low.  Also be aware of the appraisal being subject to review by underwriting.  Some lenders are even turning down appraisals that are coming in at or above the sales price.  They are questioning their own approved appraisers!  We never like to see any sort of appraisal condition.

In todays uncertain times, we need to be more careful than ever before.  Lenders are tightening up their guidelines and are requiring more verifications in order to lend.  This will lead to more conditions and probably conditional commitment letters.  

BUYERS: If your loan commitment letter has conditions, it's probably a good idea to talk to your REALTOR about getting an extension of the financing deadline.  Also beware that if you are buying in New Hampshire and using the standard NHAR Purchase and Sales Agreement and Deposit Receipt, you are instructing your lender to communicate the status of your financing and the satisfaction of lender's specified conditions to the SELLER, SELLER'S AGENT AND BUYERS AGENT.  Your information isn't as private as you may think.

REALTORS: Be careful. Review your loan commitments carefully.  If you receive a commitment letter that references conditions and if you don't get a list of conditions, contact the lender immediately and obtain it!  Don't leave your buyer out there unprotected and warn your seller about the possible pitfalls of accepting a conditional commitment.  If you need to get an extension in order to protect the parties... ask for it!

SELLERS: Although the P&S Agreement in New Hampshire seems to protect you, remember that the earnest monies cannot be released from the escrow agent unless both parties (buyer and seller) agree to their release.  If there is no agreement, this may go to Interpleader where the disbursement of those funds will be decided by the court. 

****Remember, every area and every contract can vary, so make sure that you seek local, professional advise for your specific situation.  This post is not to be interpreted as legal advise.  I am not an attorney, so please, if you need an attorney, call one. ****

Good luck in your next real estate transaction!


-Katherine Anderson, Broker 

 Coldwell Banker Hobin Realty, LLC

 Rye & Hampton, NH 

Comments (1)


mortgage industry is definetly in trouble.




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Aug 27, 2008 06:11 PM