what are some of the reasons why escrow would fail?

Asked by Myrnah, Los Angeles, CA Tue Aug 11, 2009

I am a first time buyer and I would like to know the impications of falling out of escrow?

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Nancy R Riley, MBA’s answer
Nancy R Riley…, , Tiburon, CA
Tue Aug 11, 2009
All your answers are correct, but be especially careful now with the new time guidelines of Regulation Z. If your loan agent is not careful about these you may fall out of escrow! Try to cover your risks by making sure you have plenty of time to close. Deal with all your options and ask questions at the beginning not at the end, and lock that low rate!

Best of luck!
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Jeri Creson, Agent, Studio City, CA
Tue Aug 11, 2009
The top reasons an escrow will fail are related to 3 things: Loan, Inspection and Appraisal.

To hedge your bets in this current marketplace that this doesn't happen to you - Get fully preapproved with a direct lender. I don't mean to ruffle feathers with our Mortgage Brokers - but their word alone just does not cut it these days. If you want to use a mortgage broker, make sure they submit your file and all documentation for review to a direct lender, and your approval comes from them. When I say approval, what I mean is that you have submitted tax returns, pay stubs, credit report and verifications of your employment and income have been done - all that remains is the appraisal and approval of the property you choose to buy. Late in escrow is the most expensive time of all to find out that you didn't qualify for the home you went into escrow on. Also make sure your agent protects your loan and appraisal contingencies. You do not want your earnest money deposit at risk here.

Secondly, make sure you are 100% truthful and forthcoming about your financial situation to your lender. Lending rules are tightening daily. They WILL find out the truth, and it may cost you the home after you have spend $100's on appraisals, inspections, etc. Not a good plan. Avoid job changes, AVOID NEW EXPENSES - do not charge anything new...do NOT buy a new car....Do not pay off debts unless your lender tells you that it would be a positive thing. Closing accounts can have a negative effect on your FICO.

Next, be pro-active about inspections, get them early and understand what you are buying. The few hundred dollars spent to insure you're not getting a lemon is an investment not an expense.

Finally, before you make an offer, have your agent run a full market analysis to determine the liklihood of appraisal problems. With the inventory so low, the temptation is to bid up the price. The problem is, with the current HVCC (Home Valuation Code of Conduct) and new appraisal guidelines, an astonishing number of houses are not appraising. You will lose your appraisal fee, and escrow will fail. Do this a few times, and you are eating away your down payment.

Inventory is scarce right now - please be prepared to make several offers and be persistent. We are seeing multiple offers on nearly everything. Select an agent who is willing to hang in there with you - and try to keep your spirits up. Very few people are getting their first choice home right off the bat...it's just not the way it is in this market.

Best of luck!

Jeri Creson, Broker
TotalAccess Realty Advisors
(818) 448-1298
0 votes
April Kass, Agent, Pasadena, CA
Tue Aug 11, 2009
I know that many times the loan is the reason that buyers fall out of escrow.

As a home inspector, I have seen many instances of the buyer changing their mind about buying the property after finding out about some major material defect with the property due to what their inspector reported.

Check out my website for more information about the home inspection process and please call my office with any questions at 818-951-1795
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Yanni Raz, Mortgage Broker Or Lender, los angeles, CA
Tue Aug 11, 2009
1. If the buyer cant get a loan
2. If the buyer and/or seller change is mind about the sale.
3. If buyers and/or sellers can't get all the conditions in place.

These are the main reasons why an escrow will not close.

Good luck.
Web Reference:  http://businessnotary.com
0 votes
Alexandra Pa…, Agent, Montebello, CA
Tue Aug 11, 2009
Hi Myrnah,

There are several reasons why you would fall out of escrow. The primary reason is the loan, sometimes loan regulations change and that could be a reason why escrow would fall out. Also after the buyer does the home inspections, if the property needs more work than the buyer wants to do and the seller doesn't want to any of the work the buyer may cancel escrow.

I hope this answers your question.

If you have any other questions please contact me at (323) 482-0705 or email me at alexandrasellshomes@yahoo.com
0 votes
Michael Rema…, Agent, Los Angeles, CA
Tue Aug 11, 2009
Hi Myrnah,
The main reasons escrow could fail are that you may change your mind, find something wrong with the property and be unable to negotiate repairs or credits with the seller, the property may not appraise, and/or you may not be able to obtain financing.
If you fall out of escrow prior to removing your contingencies, you could be responsible for escrow cancellation fees and would be out any money spent on doing inspections. If you cancel after removing your contingencies, your deposit could be in jeopardy.
Good luck.

Michael Remacle
Real Estate Consultant
Keller Williams Realty
0 votes
Rebecca Cham…, , Palos Verdes Estates, CA
Tue Aug 11, 2009
Generally the buyer has contingencies to purchase the property including but not limited to: Physical condition inspections, appraisal, financing, disclosures.

Once an offer is accepted and escrow is opened and the deposit check is cashed, there is a binding contract with contingencies to cancel based on the above.

If the buyer does a physical inspection of the property and finds issues they can not or will not deal with, during the contingency time frame, the contract may be cancelled in writing and the deposit returned. Same with appraisal and financing. This would be considered "falling out of escrow."

If you remove the contingencies in writing and then cancel escrow for any reason other than new disclosures by the Seller, you will likely lose your deposit.

You should hire a great Realtor who will walk you through the purchase process and protect your deposit for you.

Congratulations on becoming a home owner!
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