Financing in Riverside>Question Details

Scott, Other/Just Looking in Riverside, CA

Is it legal to demand buyer to be pre-approved by sellers lender? Even when aleady pre-approved by my lender?

Asked by Scott, Riverside, CA Fri Nov 21, 2008

I submitted an offer with pre-approval and proof of funds and selling agent rejected offer saying I had to have a pre-approval from their specific lender also. So I am supposed to have my credit run by each sellers lender? - at offer submission - that is out of control and outrageous.

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David Chamberlain’s answer
Scott, I have a buyer that I have been working with for a long time. He gets private financing and I will rxplain what we do.
As we make the offer we qualify the home with the private company. It takes two days for them to approve the property. Normaly we are getting approved by the time the deal it signed. we already know the loan to value before we look at the house so we make the offer based on that minus repairs and write it as cash. There is no financing contingecy.
This is fine if you are a seasoned investor. If not, do not mess with that thought. We always close because we have a relationship and we all know our part.
By the way I need a direct lender for a few commercial loans if you know someone.
0 votes Thank Flag Link Mon Nov 24, 2008

Most bank owned properties on the market require buyers to be pre-approved with their lender. They are trying to limit fallout as I've heard many of their escrows fail b/c the buyer can't get financing. I agree with you, it's a total hassle.

I'm a loan officer and when a borrower client of mine makes and offer on a bank owned home, I call the sellers lender and speak to them about the approval. They should NOT pull your credit again if you are working with another loan officer/lender.
1 vote Thank Flag Link Fri Nov 21, 2008
This is customary in today market. It prevents the seller from getting into escrow with a buyer that is truly NOT qualified. Unfortunately not all loan officers are equal and due a thorough inspection of Buyer's complete profile. This can cause a lot of wasted time, effort and lost sales for sellers and agents involved. Imagine being in escrow for 3 weeks or so to find out Buyer is not truly qualified. The seller has missed other offers and selling the property.

You can ALWAYS have your agent write into offer that upon acceptance you will gladly go to their lender. Many of the sellers I represent do request this and I understand it completely. I have seen a transaction fall apart from both sides when buyer was not APPROVED (not qualified) correctly upfront.

It is a great protective measure for ALL parties involved.

0 votes Thank Flag Link Fri Aug 3, 2012
This is typical with bank foreclosures. The seller has the right to require buyers to be pre-approved by their lender (themselves) so they know that the buyer can purchase the home. You don't have to use their lender.
You don't have to do it but they don't have to consider your offer if you don't.
0 votes Thank Flag Link Thu Aug 2, 2012
Agent will not accept offer unless fully approved by her lender - what is most scandalous is that the home is owned by US Bank and the agent is forcing me to go through Wells Fargo.
0 votes Thank Flag Link Mon Nov 24, 2008
If this is not a bank owned property you should be able to use your lender. As long as you have a pre approval letter and proof of funds, they shouldn't have a problem.
Web Reference:
0 votes Thank Flag Link Sun Nov 23, 2008
Scott, I agree with what you are saying. Unfortunately in this market dominated by bank owned homes, the selling bank has all the power. If you don't qualify with their lender, they can just choose to take another offer. I also agree that in a lot of cases that selling bank loan officer is trying to cross-sell and get the loan away vs. just making sure you are qualified.

It has to be illegal for sellers to force buyers to use their lender. But they still are basically doing this in many cases. Builders many times do the same thing but in a different way, they will offer these incredible incentives, but ONLY if you use thier lender.
0 votes Thank Flag Link Sat Nov 22, 2008
Thank you for the reponse(s). After a little reflection I need to add the following. Please understand that we plan to buy several homes, given it will take several offers per home acquired, we are looking at dozens of lenders with all of my personal information.
1. These lenders are not people that "I know". A lender is nothing more than a salesperson at a desk somewhere. The actual loan broker will not see my information - it will be one of his salespersons. For the offer I tried to submit it was to be with a major bank - bank loan officers are just salespeople, most of whom are great at sales - not evaluation. I was a bank VP for 12 years including an underwriter for 4 - my retail branch was doing $20Million a month when I left - so I know first hand that bank loan officers are sales people subject to human flaws -
Why should I be giving my information to dozens of these guys?
2. I believe the reason for the cross-approval is so the selling brokers' lender can cross sell me a loan - it has nothing to do with their "security in knowing the transaction will close". According to a Calif DRE Deputy Commisioner I spoke with - the selling broker could just tighten the timeframe on the contract, or simply do the cross-approval on an accepted offer - not on offer submission.
3. Because a bank cannot issue a pre-approval without following very specific guidelines - I know my application will have to be input into their system - now all of my information will be available to everyone in the institution. I know there are regulatory issues for an application to be submitted without the proper handling and official procedures being followed. If the bank is taking this application, looking it over , and just giving a verbal opinion, "Yeah it looks good" or something informal - they are in violation of many lending laws including CRA tracking.
4. What if I am submitting these loans through a private money lender? By the very nature of the transaction it may not qualify under bank guidelines (because I value my privacy, I am well known in my community) - then any private money applications are rejected?
5. Should I just submit my offers as cash, yes I have the funds, and then finance them in the manner I choose? Is that OK to do?

Thank you for your assistance.
0 votes Thank Flag Link Sat Nov 22, 2008

There is no doubt that you have a valid point........Any buyer can see and understand this is a needless duplication of effort.

On the surface, what this comes down to is that banks/lenders don't trust colleagues in their own business. How sad......

We are suffering through a process that is in serious need of regulation. Lending agencies are making up guidelines and creating mandates with little concern to the rights of the general public. Unfortunately for now, if we want to paly the game......we need to play by their rules. In time, these rules will no doubt change. For now, as you say, "they are out of control!"
0 votes Thank Flag Link Sat Nov 22, 2008
It's perfectly legal if a seller requests it. I use something called Buyer Verification with my sellers. Basically, our affiliated mortgage company Weichert Financial Services verifies every buyer pre-approval prior to taking my sellers home off the market. I've seen a lot of shaky pre-approvals recently and it's reassuring to know a buyer verified with our mortgage company (safe, reliable, rated least risky) is good to go.

In your case, I don't think every seller you encounter will request it. Only the smart ones.
0 votes Thank Flag Link Fri Nov 21, 2008
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