We are selling a home and accepted an offer. My buyer's loan got declined but she is trying to still buy the home.

Asked by Ckay, 95125 Wed Aug 29, 2012

It was a 30-day closing. Its already been 38 days. She might need another 2 weeks. Are we still bound to sell to her? The contract is null and void right? My real estate agent says that we are still bound even though there was no extension signed by us. I dont know if i can believe that. Can somebody please advise?

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Terri Vellios, Agent, Campbell, CA
Wed Aug 29, 2012
You have an agent who is most familiar with your contract. They should be advising you. Your rights are printed on the Contract you and the Buyer signed and any extensions and notice of performances issued. There is no harm in contacting your agents managing Broker and reviewing your options in the contract.

All the best to you.
Web Reference:  http://www.terrivellios.com
1 vote
Hi, we dont know if our agent has our best interest at heart anymore. We were hoping to verify and see if he is telling the truth that we have no recourse and even though we know that there is some issue with buyer's papers and delay in her funding, we still have to sell to her. Please help if you can.
Flag Wed Aug 29, 2012
Leili Mortaz, Agent, Campbell, CA
Sat Jun 1, 2013
This depends on why their loan was denied! Was it on value?! Was it the borrower's ability to make payments!? If the buyer was pre-approved, why is the loan denied!?

We have an article about Pre-Approved vs Pre-Qualifed Buyers to help our sellers make informed choices when it comes to which offer to accept. If your buyer was indeed pre-approved with a Direct Lender, then the ONLY condition should be the value. Even in this case, the lenders would offer the option to the borrower to come up with the DELTA between the appraised value and the Purchase Price to secure the loan.

You can read about Pre-Approved vs Pre-Qual in our WordPress blog post.


Good luck
0 votes
Philip Cabral, Agent, San Jose, CA
Sat Nov 10, 2012
It depends on how the contract is written. At the least, if you are past the projected close of escrow date and you want to get out of the contract get your agent to put together a note to perform.

I was on the other side of this transaction recently. My buyer required 42 days, and not the 30 days listed to close. To be direct my buyer was absolutely clean - the bank just took forever.

On the other hand, you have to consider thinking about the effort and cost of putting your house back on the market and selling it a second time. My experience is that you are better off waiting a few more days for the current buyer to close.

Good luck!
0 votes
Elena Talis, Broker, Palo Alto, CA
Wed Aug 29, 2012
Most probably, you agent is correct. The contract does not expire automatically and can't be voided unilaterally. However, if you are past the projected close of escrow date and you want to get out of the contract, get your agent to put together a note to perform. This will allow you to cancel the contract without the buyers consent, assuming that they will not be able to close withing 2 days after getting the note.

On another hand, think about putting you house back on the market and selling it second time. You may be better off waiting for the current buyer to close...
Web Reference:  http://talisrealestate.com
0 votes
Jeff Strickl…, Agent, Los Gatos, CA
Wed Aug 29, 2012
Hello Ckay,

Without knowing the specific circumstances of your transaction nor what's been agreed upon in the contract, I've answered your questions in general terms. Best to address all of your specific concerns directly with your agent..

First off, most likely you are not "bound" to sell to this buyer. If you are past your contractual timeframe agreements for close of escrow and/or loan contingencies, and have not agreed to any form of extension, you are within your rights to issue a "Notice to Perform" to the buyer, giving the buyer a specific number of days to complete the deal (typically 3 days). After which, the buyer must either close the deal or forfeit it. In this case, you would most likely be entitled to keep the buyer's deposit (this of course would depend upon the specific agreements in your transaction).

For the deal to truly be "null and void", it is up to you and your agent to officially end it (it is not automatic), and it needs to be done in writing with the buyer--which is what the above stated "Notice to Perform" process would accomplish.

In this market, many loans and lenders need 45 days to close. It is unfortunate that your buyer's lender was unable to meet the agreed upon terms, but sadly, this is hardly a rare occurence. Strong agent/lender relationships are imperative to deliver the best service. If my referred lenders don't deliver the results I need for my buyers, they are no longer on my team. It's that simple.

Conversely, as a listing agent, this is exactly why it is important to have a proven lender (or 3!) ready and able to jump in and resuscitate the deal if the buyer's lender cannot deliver as promised. If nothing else, the second opinion will give needed insight into whether the deal is even capable of closing any time soon! Close relationships with capable lenders are critical for having an effective team behind the sale of your home. Your agent likely knows someone that can help with this, and should be your first call.

Bottom line?
If the buyer can indeed close in the additional 2 weeks they've mentioned, it is most likely in your best interest to see it through. Going back on the market as a "TFT" (real estate term for, transaction fell through"), is not the strongest position to be in as a seller. So in most cases (if the deal is otherwise a good one), it's in your best interest to make it work with your current buyer if possible.

Best wishes to you in your sale!

Jeff Strickland

Jeff and Lana Strickland, Realtors®
Intero Real Estate Services, Los Gatos
phone: 408.393.7770
email: InteroJeff@gmail.com
web: http://www.JeffandLana.com
0 votes
Grace Hanamo…, Agent, Cupertino, CA
Wed Aug 29, 2012
Hi Ckay and thanks for your post.

As the others noted, your first source for information on this sale is your own listing agent. If you have further questions, contact the listing agent's broker for a meeting to discuss your situation. Aside from this, however, contract law is tricky business and only an attorney can render legal advice to you.

However, I will mirror the advice of my colleagues...determine if the buyer's loan situation is correctable or if the buyer simply cannot get a loan. If the situation is correctable and the chances of a loan are good, then an extension would be advisable. However, if the mortgage broker for the buyer says that "chances are slim" they can find another loan, then it's best to find another buyer--issue a notice to perform and then cancel the contract.

Obviously, the best choice for you will depend greatly on the facts and the buyer's ability to get a new loan in time. For this information, you will need to talk directly with your listing agent and, if necessary, the agent's broker.

Good luck!

Grace Morioka
Area Pro Realty-People's Choice
Buyer Rebates/Low Cost Listing-100 percent service
0 votes
Andrea Wince…, Agent, Milpitas, CA
Wed Aug 29, 2012
It depends upon whether or not your listing agent made sure the buyers removed all contingencies. It is difficult to answer your question when I am not privy to the terms of your contract. Ask your agent about giving the buyer a notice to perform or quit.
0 votes
The Medford…, Agent, Fremont, CA
Wed Aug 29, 2012
This is driving us ALL silly – almost every transaction we’ve had this year has been late closing because of lender/loan issues. I’m talking about a lot of transactions and a ton of lender problems …

So … you are not alone.

As stated below, only your agent really knows what the contract states. Personally, the way you explain it sounds a bit fishy. Here’s what I recommend:

First, find out of there really is a cure for your buyer’s loan woes. Make sure your agent is talking directly to the buyer’s lender. Second, if it looks like it can still happen, hang in there, get your agent to ask for an extension for contingencies (if applicable) and the COE so that you are legally still in contract. This has to be killing the buyers – I’m assuming they’ve already spend money on inspections, appraisals, etc. – if you can wait, you will really bless them. And it will ultimately be faster than having to go back on the market again and go through another escrow.

If it looks like there is not going to be at least a 90% chance of a loan, then cut your losses and move on. Have your agent file a 24 hour Notice To Perform followed immediately by a Notice of Cancellation.
0 votes
Gail Thomson, Agent, Los Gatos, CA
Wed Aug 29, 2012
The vast majority of residential purchase contracts in this area have active contingencies, not passive contingencies, which means they remain in place until the buyer removes them in writing and don't "time out". This likely means that they have a loan contingency in place still. However, as they have passed the contingency timeline you are probably able to issue them a "notice to perform" and then proceed to release from the contract after a specified period of time. This should all be spelled out in detail in your contract if you have a CAR or PRDS purchase agreement.

Before you proceed down this road, however, make sure you're not starting over unnecessarily. Has the buyer's lender found a new loan program that WILL work for the buyer? Has your agent had the opportunity to discuss this with buyer's lender. Are you and your agent comfortable that this loan has a good chance of succeeding? If they can close in 2 weeks it may be better to stay the course than start over with a new buyer as, unless it's all cash, that will take longer than 2 weeks. Does your agent have an existing lender relationship that you can leverage to pre-approve the buyer to give you that extra comfort level?

Every case is unique but it all starts with reading and understanding your contractual options and fully investigating the buyers loan situation and the likelihood of them being able to complete the purchase.

Best of luck.

Gail Thomson
Cell: (408) 205 3758 | Office: (408) 357 5710
Blog: http://www.finehomemoves.com
Facebook: http://www.facebook.com/FineHomeMoves
Intero Real Estate Services
518 N Santa Cruz Ave, Los Gatos, CA 95030
0 votes
Steven Ornel…, Agent, Fremont, CA
Wed Aug 29, 2012

I agree 100% with Terri; however, I will comment on part of what you posted:

"The contract is null and void right? My real estate agent says that we are still bound even though there was no extension signed by us. I dont know if i can believe that."

Assuming the offer received was via the CAR RPA (version 4/10), and there were no other addendums that modified any of the RPA's standard language, the three primary contingencies of the CAR Residential Purchase Agreement [Loan/Appraisal/Inspection(s)] require "active" removal in writing; as opposed to a "passive" removal where a date simply passes and automatically removes the contingency. Para 14C may provide some clarity regarding your Agent's comment.

0 votes
Walter 'Skip'…, Agent, Brea, CA
Wed Aug 29, 2012
There is a process you need to go through to cancel the contract. It doesn't automatically cancel. You should discuss how to cancel with your agent.
Good luck,
0 votes
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