Home Buying in Anaheim>Question Details

Teresap, Home Buyer in Cypress, CA

As part of a counter offer on a short sale, the seller asked to have the buyer to have 17 days to remove loan contingency after short sale acceptance

Asked by Teresap, Cypress, CA Thu Dec 8, 2011

Is removing the loan contingency advisable?

Help the community by answering this question:


Hi Teresap,

There is no doubt that removing loan contingency prior to funding is a risk. But every real estate deal carries with it certain levels of risk. It's unavoidable. It's not uncommon for Seller's to ask that loan contingency be removed with all other Buyer contingencies at day 17. That being said, you must speak with your Lender right away and make sure they have all documentation from you so as to facilitate the loan approval process. Ask them point blank, do you see any reason why the financing would not go through or be denied. Tell your Lender what the Seller is asking of you in the counter offer and that you do not want to remove loan contingency at day 17 and be told on day 40 of a 45 day escrow that the loan is being denied. Ask your Realtor to have the same conversation with your Lender. At this point, based on your dicussion with your Lender and your Realtors professional opinion you will be able to determine if you will accept the Seller's counter offer. The risk will still be an issue, but hopefully your conversations with your Lender & Realtor will give you the confidence to make the right decision for you and your family. I wish you the best of luck!

Warmest Regards,

1 vote Thank Flag Link Thu Dec 8, 2011
That is how the contract reads and what should be followed. It's when that contingency is requested to be removed PRIOR to short sale approval that would be a red flag. However, as long as you and the seller both signed a Short Sale Addendum, that will supersede the purchase contract in that according to the SSA everything in the purchase contract is "Subject to Lender/Investors Approval". Your agent should be able to explain this to you.
Web Reference: http://www.markgundlach.com
1 vote Thank Flag Link Thu Dec 8, 2011
That is normal, remember each side of the transaction have time frames to perform duties. At about 17 days as built into a California contract 17 days is the standard time frame to remove all contingencies. This is so the seller knows they have a serious qualified buyer ready to go. Many times if you need longer then 17 days to remove the loan contingency your agent can ask for an extension and for the most part they will do it Sometimes they won't. But it is very important to get to your lender all the paperwork they need and to order the appraisal asap. And do the property inspection right away. The sooner you have the property inspection, appraisal and the lender has all your paperwork you should be ok. But stay on top of it with your agent and mark on your calendar when these time frames will hit. Hope this helps. Good Luck.

Peter Solomon / Realtor
T.N.G. Real Estate Consultants
Web Reference: http://www.soldbypeyer.com
1 vote Thank Flag Link Thu Dec 8, 2011
Hi Teresa:

The loan contingency is in place to give you time to get your loan formally approved through underwriting. On many loans types, this is enough time to get through the loan process and get approval. However, there are some loan types that take a bit longer depending on your circumstances and the approval type that you have. For instance, I have worked with FHA buyers who require manual underwriting during the loan process due to their credit situation and I have found that this type of approval takes more than 17 days. When I know this is the case, I will ask for 22-25 days loan contingency and 35-45 day escrow.

I would suggest you discuss this with your mortgage company and agent so that everyone is on the same page and understands your current loan approval situation. Ask your loan officer a direct question "Can you have loan approval in 17 days?"

Best wishes on your home purchase.
0 votes Thank Flag Link Mon May 14, 2012
Yes this is customary, but make sure that acceptance means that the lender on the short sale has accepted the offer. Otherwise you could pay for an appraisal and lose the money. I know some major lenders do not require you to pay for the appraisal out of pocket, but they will not do the appraisal either until the sellers lender has approved the short sale.

Most lenders do not understand (or care) about the buyer’s liability on this. If the loan is declined after the contingency period, they buyer could and most likely will lose their deposit. Yet they almost never order the appraisal in time to have it done. As a loan officer I order the appraisal first, that way the loan is fully approved by the end of the contingency period. If I can I even get the loan documents signed. If the loan is delayed, everyone runs around and is angry, no one needs the extra stress.
0 votes Thank Flag Link Fri Dec 9, 2011
Actually this is the regular period to remove loan contingency in the official RPA (Residential Purchase Agreement) By National association of realters or as agreed between parties otherwise,no offer is accepted if the byuer is not qualified for the loan in advance,so within 17 days the byuer and the property must be approved for the loan.
Please feel free for any adiitional question
Sam Nasri
Real Estate & Mortgage Broker
0 votes Thank Flag Link Fri Dec 9, 2011
Seems to be relativley normal. Not much cause for concern as long as both parties are commited to getting the sale closed.
0 votes Thank Flag Link Thu Dec 8, 2011
HI Teresa,

First, It depends what is written in your offer. There is a clause for the standard 17 day contingencies. Would need to know how your contract is written. You should be going over this with your agent and or their broker if you want more clairifcation than talking with your agent..
Second, the sellers agent can counter the same information that is already in your offer and just making it more transparent and upfront for you. I would read over your contract and note down all the questions you have and talk to your agent or their broker..
Third, as a buyer you want the loan contingency on as long as possible and the seller wants it off as soon as possible.. This is why you negotiate and keep in communication with the seller what you are doing and their agent can also talk with your lender as to the progress of your loan approval.. This is the most helpful of all..
Communication is key always...

Hope this helps you,

Ingrid Ski Realtor
0 votes Thank Flag Link Thu Dec 8, 2011
It appears the previous answers have covered the terms and when times periods typically begin (after short sale approval from the lender).

That being said I’m guessing your agent check the box under page two of the Residential Purchase Agreement H 3 stating “the loan contingency shall remain in effect until the designated loans are funded”. Your agent most likely did this to add some protection should your loan not fund; however, if you are a qualified buyer the 17 days as written into the form should suffice.

Thank you,

Darren Koenig
0 votes Thank Flag Link Thu Dec 8, 2011
Hi TeresaP, Just to clarify one point. When you say "short sale acceptance", we assume that you REALLY mean the "Lender's approval" of your offer, NOT the Seller's acceptance of your offer.

When the seller "accepts" your offer, it is then submitted to the lender(s) who then typically take anywhere from 2 weeks to 3 months, to actually respond to your offer. That response might be in the form of an approval of your offer, OR, it could be a counter-offer at a higher price. Assuming that it's an approval, your 17 day contingency removal period should start the next day, and should be sufficient time to make yourself satisfied with the purchase, through inspections, appraisal, and other negotiations.

Good luck with your transaction.
0 votes Thank Flag Link Thu Dec 8, 2011
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