Lets put this in simple terms.
1. Is it a big risk to release funds to the Seller early? Absolutely.
2. Is your loan OK if the lender says so? Absolutely not!
3. Lastly, are verbal confirmations from various entitites involved in a real estate transaction Ok? No.
So what can you do.....
1. Ask your lender to send you in writing the "Underwriting Conditions." These are conditions that either you, the lender within his department, escrow or title, etc., have to satisfy in order to fund the loan. It is a check list of items. When you get it make sure all items that you are responsible for have been received and signed off by the loan underwriter. Do remember, it is not your loan officer that you or your agent talk to, that decides on your loan - it is the Loan Underwriter who is the "Decider." Get the conditions in writing and also make sure that your appraisal has been received by the lender and accepted by the underwriter unconditionally. Make sure you ask and get a copy of the appraisal report. In all probability, you would have paid for it and by law, are entitled to a copy. The left over items on the checklist should only be those pertaining to the lender. Make sure that the underwriter has signed this. If it is not, which happens frequently, ask the loan officer to sign it.
2. Any release of money to the Seller, must be documented and take the advice others have given earlier - get it drafted by an attorney, It will be money well spent.
3. Even if your transaction is 99.9% done, it does not matter. Treat the entire transaction with the same degree of care and scrutiny until it closes.
4. Lastly, remember this always and you should be OK - THERE IS NO VERBAL REAL ESTATE!
United America Realty
Thurs night I was regretting that I had already committed to custom blinds for a house where the transaction was 99.9% done. All that money would have been gone had the deal fallen apart at the very last minute. Similar situation, albeit with different circumstances, but would have resulted in the same problem - I would have been out-of-pocket due to seller failure to perform. Happily, it was all resolved, but that doesn't always happen.
The agents are correct; you need to make sure that there is either an escrow instruction or addendum in place. I donâ€™t believe there would be a problem with the lender, but again you would need to check. The reason I donâ€™t think it would be is because you can arrange for the deposit to be released before the close if you want to at any time in the transaction, but lenders are strange now. The thing that you want to remember is that if for some reason that the seller doesnâ€™t close, you would not be obligated to give up your deposit and so there lies the little catch. This is something that you have to feel is right, understanding that if she doesnâ€™t close you have a right to your deposit back and if she has it you probably wonâ€™t get it back. As long as your agent has verified with escrow that she will be getting proceeds that exceed the amount you are going to release than once it closes it will be hers anyway. So again it would be your callâ€¦after all it is your money.
Basically, an option is a contract that specifies a set of terms and conditions by which one may acquire something (your new home in this case).
Earlier when I answered, you hadn't explicitly stated that you had waived all of your contingencies, so I recommended the use of the option. Now, that I know you already waived all of your contingencies, I like Gina might lean towards using an addendum (although an option could also work here).
Regardless of whether you opt to go with an option or addendum, you need a contract in place to document this relationship, and you need it to protect you in case the seller--for whatever reason--doesn't perform. I'd still NOT touch your EMD. Also, I'd still NOT touch anything that has to do with your down payment without first having OKed this with your lender--hence my recommendation that the amount collected by applied towards the purchase (whether or not the bank blesses the application of that amount towards the down payment).
Having said all of that, I don't think--but I don't know for certain--your lender would have a problem with this arrangement as long as it's documented. I believe you'd have a MUCH stronger case (to deduct that amount from the down payment) to present to your lender. Plus, this relationship will also get documented on your HUD-1, so that years later (after everyone involved has forgotten all of the underlying details of this transaction) if ANYONE were to go back to re-examine this transaction, then you'll have covered yourself.
Have you removed all of your contingencies? If you have then it doesnâ€™t matter if you release money to the seller as long as the seller is going to receive money.The key is will the seller be receiving money and have you removed your contingencies. If your offer was on a short sale, then no, you should not release any money because the seller will not be receiving any. If you have not removed all of your contingencies then I probably would not release any money, because you never no if it will close until it closes.
Under no circumstances would I ever recommend a buyer release a deposit to a seller prior to close. And your agent should do the same for you. Taking the emotion out of the equation, please remember this is a business transaction. And I don't know very many people that would make what amounts to an interest free loan, to a stranger with no collateral. Not only that, but the stranger is obviously having financial difficulties of their own. My strongest suggestion is to decline the request, and remind your agent that his/her primary duty is a fiduciary one to you.
If you have any other questions, please donâ€™t hesitate to call or visit our website shown below.
Forefront Real Estate
154 W. Foothill Blvd #A308
Upland, CA 91786
The sad truth is yes she is required by law to give you the keys as agreed, however unfortunately guess what. If she doesn't then your only recourse is court, you see you have given her permission to be in your home. At least that is my understanding. I will also tell you that usually everything works out. But since I'm not in the transaction I'm only responding to the story.
Why don't you close early? if you sign tomorrow you should be able to close by Tuesday. Then she would have all of her money. But again if you have removed all of your contingencies in writing, then she will be entitled to the money weather you close or not as long as you do not have a loan contingency and she doesn't cancel. Just a thought.
I am thinking the best think to do is to check with the lender to make sure it's OK , then have her agree that if we release the deposit, she will close early. Our agent said that basically we are helping her in this process because she is "broke" and also that we are basically giving her a small portion of the full amount she is to receive upfront.
DP2, I don't understand what "write an option" means. Can you please elaborate? Pat, I love the hard line tone in your message.... I always though our agent should be a bit more like that..... thanks and it makes sense
Diana, I just signed the form to remove all contingencies. I think tomorrow I might sign a couple others as I've been told. This is a conventional sale and she will be receiving the money for her rent deposit, etc. I am actually going to the property tomorrow to do get measurements and show it to my parents. I really don't want to discuss business with her but am afraid she will ask about this and tell me about her situation. We are scheduled to close on the 11th of June (on the contract) however there is a contingency plan to close on June 3rd is possible (nothing has been signed regarding this plan). In order for that to happen she has to find somewhere to live. I don't think 1 week is much of a longer wait so it's really looking like a "no".
Emotion I think is key here. It's probably better that we never met or talked so it can be strictly business. I actually arranged this visit with her not using our agents (which seems easier) however that might not be the best route. I want a smooth transaction and the "nice" thing to do is release however now I am a bit concerned about the bank becoming suspicious, etc. More information is very appreciated and again thank you all! The internet is fabulous.