Home Selling in 02767>Question Details

Suzanne, Home Seller in Massachusetts

Can I cancel my contract due to the buyer not obtaining a real commitment letter?

Asked by Suzanne, Massachusetts Sat Oct 9, 2010

We have a buyer for our home who is attempting to obtain an FHA 3% down mortgage. After several weeks of stating that they had submitted all their info to the mortgage company, the appraisal was finally conducted 3 business days prior to the mortgage commitment due date on the purchase and sale. The due date came and went with no commitment letter, not surprisingly. Buyer requested an extension for the end of that week. On the 2nd due date, the mortgage company still did not deliver the commitment letter, for reasons unknown, so the buyer went to a local bank and somehow quickly managed to obtain a "commitment letter" with an hour to spare before the extension date expired. We reviewed this letter and it has over 12 conditions still to be met by the buyer, including an appraisal to be conducted, since this is a different lender now. We have far too much riding on the sale of this house to continue playing games with this buyer and would prefer to cancel this contract. Can we?

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Answers

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Tom Matthews & Joanne Taranto’s answer
Suzanne:

This is a great question for your attorney, but if the buyers went to a local bank I would drive over to that local bank and talk to the loan banker. Sometimes that daunting list is not that much and it can be done quickly. I love local banks because they are so strict and won't put their names on a letter unless the client has been vetted and can get done.

I am working on a transaction and the buyer a doctor was denied financing with 20% down the day before the closing by a mortgage broker. They went to a bank and we are cloing in 14 days. Buyers are hard to come by and I would not punish the buyers for making a mistake. Best
0 votes Thank Flag Link Thu Nov 3, 2011
Suzanne,

Sadly, none of these realtors answered your simple question: "can you cancel the contract due to the conditions in the commitment letter?"

They all just attempted to convince you to go through with the sale. They are only looking out for themselves. Remember this and use a real estate attorney next time. Although generally just as slimy, they are at least professionals. Let the listing agent perform the only action that realtors are qualified to do - unlock a door and let you into a home for sale.
1 vote Thank Flag Link Mon Sep 16, 2013
Bill,
This question was asked and answered 3 YEARS AGO !
Flag Mon Sep 16, 2013
Suzanne, if you signed ANY of the extensions presented to you by the buyer or your Realtor, then you are still Under Contract with this buyer. You seem to have a legitimate reason to opt out of the deal, but you had best let your attorney handle that matter as neither your Realtor or you have the legal expertise to cancel once the extension has been signed. The other posts were correct in that commitment letters will typically have conditions that need to be met right up to the final hour. As far as the FHA appraisal, you are correct that the case number goes with the property, but that is not a big deal to transfer the case number to a new lender. If there was concern about this buyer the best thing your Realtor could have done for you was to flag the listing as still "Active" pending the mortgage commitment which would have allowed other buyers to pursue your property and make a "backup offer". By the way, your Realtor still has a legal responsibility to represent You as a Seller's Agent. The Realtor can only facilitate the deal with the buyer. I have been a Real Estate Appraiser (FHA approved) for over 25 years and I am also a Century 21 Realtor in Raynham, MA.
0 votes Thank Flag Link Wed Nov 2, 2011
Loans always have conditions right up until the very end. Don't look a gift horse in the mouth. If you have no other buyers give it a shot. In addition with a signed extension you are still legally and contractually obligated to the buyer. Once the dates for extensions have passed and they have not coughed up the documents you can move on. Also if they go past their committment date with no committment you can keep the Deposits if they cant close.
0 votes Thank Flag Link Thu Oct 14, 2010
Suzanne,
All commitment letters still have conditions.. i.e. insurance binders, employment verification within 24 hours of loan closing, perhaps requests for w-2 paystubs right up to the day of closings. Obtaining a loan today is very difficult for buyers and stressful for sellers too. I've seen banks request last minute items even AFTER mortgage commitment.
Your question.. yes, if the mortgage commitment date has come and gone, you have every right to cancel the contract. If it were me, in this market, I wouldn't be so fast, unless you feel confident that you can sell your home quickly when it's taken off the market. Try to give this buyer a chance. It may not be the buyers fault, but the lenders. All parties seem to be at the mercy of the banks today. Hope this helps. Call me if you have additional questions, Susan. and thank you for posting your question.
0 votes Thank Flag Link Sat Oct 9, 2010
Suzanne, if you don't have a buyer in the wings and you feel that this buyer wants to make it work. I recommend rewritting your agreement with them as your present one appears to have expired. Although they have a commitment, it is not unconditional, yet if they want to proceed and have stated such, they are doing it at their own risk (as the mortgage commitment has condtions) you have to wait till they ask for an extention to close.

How I would change the agreement is to allow you to continue to show the property and to take back up offers and if you receive one that is acceptable than your present buyer will have 24 to 48 hours (which ever you agree on) to remove his financing clause or to back out of the deal and let you proceed with the new buyer.
0 votes Thank Flag Link Sat Oct 9, 2010
Suzanne
Dual agency is when the same broker represents both buyer and seller. It can be the same Realtor, or two different Realtors working for the same broker.

Let me lay it out for you:

Was this buyer's preapproval obtained before the offer was accepted? That means that assuming the home appraises for the sale price, clear title, etc. the buyer will get the loan.

This is the third post this weekend I have read about unapproved buyers getting their offers accepted. Has the world gone crazy? I can tell you that I personally call the buyer's lender and grill the lender to make sure that the buyer is indeed qualified. That also means looking at their FICO scores and verifying their down payment,

It makes sense that the buyer's new lender needs a new appraisal, to me it goes back to the question...why was the buyer's qualification not investigated before all this.

I would ask to speak with your Realtor's broker about this. I don't know your laws, but if it were me I'd make sure that your property was still being actively marketed (we would call this "taking back up offers", which tells Realtors that you have an offer, but the offer may cancel).

The other thing to do is give the buyer a cancellation notice, stating that if they don't have their contingencies removed by a certain date, then BAM. Of course, (see link) if your property is losing value at 1% or so every month, and there are no other buyers, then I would try to make this buyer work.

I just had a listing where the buyer's agent brought an offer, I suggested that they qualify with my lender, found out the in fact the buyers WHERE NOT QUALIFIED. Fortunately my lender figured out by adding the son they could qualify.

However, then the buyer's agent submits a revised offer with an approval letter from the previous lender...who said that they qualified when they did not. I called her and "persuaded" that if this lender did not in fact know that these people were not qualified the first time, why on earth would she expect a loan performed by this guy to close on time...which is very important in a short sale.

Good luck.
0 votes Thank Flag Link Sat Oct 9, 2010
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
There is no dual agency in this situation. The buyers do not have an agent working for them.

The extension for mortgage commitment has expired and the "commitment letter" we received lists over 13 conditions, all of which detail things that an applicant would need to fulfill before an application even crosses an underwriter's desk. This letter is not just a "conditional commitment", but has nearly all the same requirements of an application at step 1 of the process. Knowing how FHA loans work, as a former mortgage underwriter, I'm aware of just how long this process can take and this is one of my major concerns. We're not only far past the date that was set for the buyer to apply for a mortgage, but now past the date of acceptable commitment letter.

As for the appraisal, the first mortgage company had already had an appraisal done, and the home appraised above sale price. There were no issues precluding it from passing muster. Of additional concern however, is the fact that with an FHA appraisal, that appraisal is assigned a case # and is now held in the system by the original broker that was working this loan. This will undoubtedly hold up the second lender from being able to get a timely appraisal done on the property. Meanwhile, the buyer is adamant that this will close on time and is demanding that we all move forward.

No one is very happy at this point and with lawyers about to step in, things could get ugly.
0 votes Thank Flag Link Sat Oct 9, 2010
How long was your home on the market? Were you taking back up offers during the time the buyer was trying to get their financing? You can not just cancel an agreement. The agreement calls for a time period for the buyer to get his financing. If you and he have extended that time, then you have to wait till the expiration of that time or if the buyer notifies you that they have not obtained the financing. It is not uncommon for commitments to come thru with conditions, some of those conditions can't be met till the day of closing. If the buyer is happy with the commitment and they can't meet the conditions of the bank, then they will be unable to close and forfiet their deposit to you.

Both the agents below missed what you said "the buyer has no representation" therefore it is not dual agency. In our state before you can be a dual agent, you must have "consent and notification" both must be written as well.


1st of all FHA deals are very difficult to do. Your property must be in impeccable condition or it will fail the appraisal and or you will have to bring it up to snuff before they will close on it. Not only am I an Broker I also an an FHA appraiser.
0 votes Thank Flag Link Sat Oct 9, 2010
Suzanne -

I agree Dual Agency is horrific and never fully protects anyone. Your Listing contract is with the BROKER, not the agent (the agent is an agent of the Broker) If the agent / broker is a sole practioner, there's no one you can go to. If it's a typicaly real estate brokerage, contact the Broker in Charge and ask to meet with him / her immediately without your agent. Ask to be assigned to another agent in the office - because it does not sound like you are being represented equally to the buyer. If the Broker won't help, then get a local Real Estate attorney involved ASAP - it might cost you a few hundred dollars but that will be better than what you might not know about and it may save your deal.

Best of luck,

Thom Colby
Broker / Owner & Certified HAFA Specialist
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END Transactions in our Brokerage. There is NO benefit to the Seller or Buyer and only benefits the Agent. Also, NEVER use your RE Agent / Broker as your Lender or vice versa. Also, be careful when using Real Estate Broker-owned Escrow and Title Companies - they can be loads of trouble.
888-391-5245 Direct Cell
THOM@THOMCOLBY.COM
DRE# 01398570
0 votes Thank Flag Link Sat Oct 9, 2010
Ah...dual agency! The most evil thing in real estate!

Demand that the agent turn the buyer or you over to the broker in the office so that there are people representing the parties separately.

If the agent refused, then hire a residential real estate attorney to represent your interest and dig into the details.

That's the only way you are going to get the real answers!

Also, I am happy to go over the loan/contract with you without being your represntative or charging a fee if the above can't happen. I am licensed as a Broker in the State of California and own a mortgage company.

You can call me at 415-683-6950 or email me fred@fredglick.com
Web Reference: http://fglick.com
0 votes Thank Flag Link Sat Oct 9, 2010
The buyer has no representation, our realtor brought the buyer himself. I'm not feeling very supported by my realtor at the moment, as he seems to be unconcerned with the risks this poses to me and my attorney is out of town through next week...hence my post to this forum. The thought of packing up my entire home, hiring movers, uprooting my children from their schools, securing housing going forward, etc., all based on a very flimsy "commitment letter" obtained in a matter of a few hours, doesn't give me much confidence that this deal with go through. Bottom line is, the buyer doesn't look or feel solid to me. Interest is great, but it's got to have some meat behind it.
While I know it's a hard market to sell in, I have no problem losing the deal, as I don't need to move and am in no hurry. I would much rather cancel this deal, take the house off the market and maybe give this another try in the Spring. I just want to know if I can legally get out of it at this point.
0 votes Thank Flag Link Sat Oct 9, 2010
Suzanne -

Where is your REALTOR in this transaction? That would be your best resource to get you through this transaction or to get it cancelled so you can move on.

Best of luck,

Thom Colby
Broker / Owner & Certified HAFA Specialist
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END Transactions in our Brokerage. There is NO benefit to the Seller or Buyer and only benefits the Agent. Also, NEVER use your RE Agent / Broker as your Lender or vice versa. Also, be careful when using Real Estate Broker-owned Escrow and Title Companies - they can be loads of trouble.
888-391-5245 Direct Cell
THOM@THOMCOLBY.COM
DRE# 01398570
0 votes Thank Flag Link Sat Oct 9, 2010
In your contract I would assume that is says that they have to obtain a commitment, not a commitment without any conditions.

The fact that they went to the bank after being tortured by the first people indicates to me that they are really interested in buying your home.

Check carefully with your agent as to the conditions and have your agent make sure that these are doable things.

Bottom line, don't lose a real buyer in this market!
Web Reference: http://fglick.com
0 votes Thank Flag Link Sat Oct 9, 2010
Yes you can based on what is stated above. It sounds like what they have is a pre qualification letter and not a commitment letter. Generally in a contract the commitment date is set to be approved for the loan. Ideally by this date all conditions have been met in order to get the loan. It sounds like they are just starting the process over again.

Remember, it could have been the lender that was holding things up before, and the buyer is really doing their best to get things done. If they are going to pay for a 2nd appraisal I am assuming they are putting forth effort, so you should take that into consideration. I've come across lenders who just didn't have their act together and it was necessary for a buyer to go somewhere else. You don't want to throw out a good opportunity to move on with things. What is your agent suggesting?
0 votes Thank Flag Link Sat Oct 9, 2010
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