If anyone can screw up an otherwise perfect real estate transaction, it's a lender. There seems to be a flaw in the function and form of the way mortgage brokers are related to the terms of a real estate Purchase Contract. It could be said that the mortgage process is the most critical of all the moving parts in a real estate transaction. It is a little disconcerning knowing how important the mortgage peice of the puzzel is; yet, a mortgage company has no liablity if and when they are the cause of error, delay or breach of Contract. This is why I ask, should mortgage companies be required to place earnest money as security to the patties of a real estate transaction? If they say they can process and close a loan by a certain date, then they should be held to that committment and should back it with an earnest deposit that they will get back when a transaction is finalized.
Of course this isn't going to happen but it should and here is one example why.
Recently, I represeted a buyer whose qualifications, housing needs and search area criteria would be prefect for a particular grant program. This program's benefits included, no down payment, no more than $500 out-of-pocket buyer contribuition and no mortgage insurance. I told the buyer the bank that represented this mortgage product wasn't my "A" team by any stretch of the imagination but the benefit is significant enough to put up with thier lack of service and professionalism.
In addition to these fantastic purchase incentives the buyer recieved from the funding program, during the course of the purchase process, this buyer's home also appraised for $20,000 over the locked in purchase price and we had negotiated the seller pay for an expensive underground sewer pipe replacement. The mortgage company promised to porcess and close the loan 45 days after the purchase contract was accepted. The lender had given the buyer a conditional loan approval which typically means an underwriter might just need to see the lastest updated information (bank statments, paystubs and a final credit pull). With the financing portion well under control and after a few nervous moments wondering if the seller would pay for a new sewer pipe as an inspection request, all went smooth in the tranaction, until...
4 days before closing when the lender sent an e-mail to all parties involved that they were going to need a 2-4 week extension so that they may finalize the underwriting and loan documentation. Remember, the home appraised for $20,000 more than purchase price and the seller was aware of such. A 2-4 week extension is unheardof and with that much equity left on the table, cancellation for my buyer was imminent. It turns out, I was able to convince the mortgage company to hurry and close only 4 days late and luckily the seller didn't want to risk losing a ready, willing and able buyer at hand. This transaction did close; however, the risk of loss was substanstial for my buyer.
Here is the point. The buyer was warned of the potential hazard of this mortgage company's typical lack of service and delay's, hedged her risk against its benefits and won. Had that transaction not gone through because the mortgage company's delay were enough to force the seller into cancellation, my buyer would have suffered a significant loss. The buyer would have no recourse against the mortgage company because the mortgage company isn't a party of the Purchase Contract's terms. I say include terms in the Purchase Contract that include the mortgage company as a party to the transaction. If they say they can process a loan within a given period of time, then they need to put thier money where thier months are.