G.M. Filisko is a Chicago area freelance and former editor for REALTOR® Magazine.
Prevent Financing Failures
Eleventh-hour financing fiascos seem to be happening more often these days. Here's how to make sure everything moves along smoothly at the closing table.
October 1, 2008
True story: A buyer in Roxbury, N.J., was approved last fall for a loan from a local mortgage company to purchase a home listed with Weichert, REALTORS®. She’d visited the lender’s office less than 48 hours before her scheduled closing to finalize the paperwork.
At the closing, however, the funds had evaporated. The buyer’s salesperson called the lender. No answer. The salesperson jumped in the car and drove to the lender’s office. She found the doors locked and the furniture and company sign gone.
"We’re seeing a much higher incidence of buyers thinking they have financing and finding out either at the closing table or days before that the lender doesn’t have the money or has gone out of business," says Jacelyn Botti, head of residential sales at Weichert, REALTORS®, in Morris Plains, N.J.
That’s why Weichert is among a growing list of companies working to bulletproof financing for buyers. Weichert's program offers sellers a "buyer verification," which lets them request that buyers get a mortgage approval at no cost from Weichert’s funding affiliate before making an offer on the sellers’ property. If buyers are approved, they’re not required to use Weichert’s financing, although Botti says many do.
Century 21 Country North Inc. offers a similar service. "If buyers have a financing commitment letter, but we’ve never heard of the lender, we’re advising sellers to request in the contract that buyers get a prequalification letter from Century 21 Mortgage or a different lender—somebody we know who’ll tell us the truth," says Jan Mansfield, the Rockford, Ill., company’s broker-owner. "If it’s a bogus commitment, we find it out right then."
While many financing backstop programs are run by national brands with affiliated lending operations, brokerages without lending arms can adopt a similar program. For instance, Mansfield’s company has solid working relationships with several national lenders, and a prequalification letter from any of them will satisfy the terms of the contract.
Weichert is also training sales associates to look closely at preapprovals, which are generally more stringent than prequalifications, and assess whether lenders are actually committing to financing. "You’d be amazed at the language in these preapproval letters," says Botti, who keeps a folder of letters to educate salespeople on the importance of carefully reading contract documents. "One says, ‘I think the buyer is an honorable and decent person.’"
Keller Williams Realty International Inc. is advising its associates to work closely with appraisers to ensure that financing won’t cave because of low appraisals.
"We’re telling associates they need to provide all the data they have that validates the purchase price," says Dave Jenks, the Austin, Texas, company’s vice president of research and development. "They can’t influence the appraisal, but if associates have done a full CMA looking at what’s on the market and recent sales—including anything that might be unusual, like sellers contributing to closing costs or doing an interest rate buy down—they need to make sure the appraiser knows that information."
Back to the buyer whose financing vanished at closing: When her sales associate returned to the closing after finding the lender’s doors shuttered, she recommended the buyer try to get financing through Weichert. The buyer did, and the transaction closed four days later.