I first met Rhonda while I was with John L Scott in Federal Way. She regularly visited the office to distribute marketing materials. As my office was located in close proximity to the agent mail boxes, I often had occasion to “bump into” her.

Over the years I’ve recommended a number of different lenders to my buyer clients based upon their performance, integrity, and fair pricing. And by integrity I don’t just mean straightforward and honest – that’s a given. I mean delivering what’s promised… cause neither I nor my clients like surprises.

It was during the real estate run up of the last several years when the lender I was then using left the area.

Coincidently I was seeing a lot of what I considered bad actor lenders on the other side of my transactions. I was primarily listing properties where I represented sellers, but since I always review the HUD-1 (settlement statement ) I could see what the lender was up to.

So I set out to find a new lender. Being in the business as long as I have, plus spending some time digging into common lending practices, I knew what I wanted in a lender for my clients.

When you buy a home, it’s pretty much what-you-see-is-what-you-get (yes, you need a good inspector).

Not so in the lending business. Practices tends to be opaque. Unless you’re in the business (or invest substantial time learning), there’s just no way you’re going to know all the ins and outs. And even if you do invest the time, you really won’t know what you’ve got until closing (and as we’ve seen in the press, often not even then).

And that’s what led me to Rhonda. Although she’s got all the credentials in the world, is referenced and quoted nationally, that’s not really important to me.

It’s that she knows her stuff, is transparent and straightforward, and can be depended upon her to take excellent care of my clients. In other words, she’s worthy of not only my trust, but of my client’s trust.

And so again, it’s my pleasure to welcome Rhonda.

I made the follow comment to a post made by Jason Mook: Switching Boats Mid Stream.

This issue concerns the typical financing contingency found in most real estate contracts. In essence, the financing contingency says the purchase and sale of a property is subject to the buyer obtaining financing. If the buyer can’t obtain financing, they can’t buy the property (they won’t have the money). The purchase and sale agreement is terminated and the buyer’s earnest money is returned. But, just because a buyer is unable to obtain financing under the strict terms of the contingency, doesn’t always mean they can terminate the agreement and get their earnest money back. They have to have made a good faith effort.

Jason – A stimulating post. I agree with your position as far as it goes.

To my mind, and from a seller’s perspective, as long as the buyer is making a good faith effort to obtain financing, you’d want to give the buyer the benefit of the doubt and let them pursue (within a reasonable time frame with the seller’s agent continuously monitoring, etc.) financing.

In your scenario, the buyer switches lenders after; 1) the seller receives a loan commitment letter per NWMLS 22a and 2) the underwriter subsequently fails the file.

However, consider the scenario where a buyer’s offer is accepted by the seller in part based upon a “tight” preapproval letter (where the loan commitment is subject only to satisfactory appraisal, clear title and title insurance, etc.)

After mutual acceptance and prior to receiving a loan commitment letter per NWMLS 22a, the buyer switches lenders.

Subsequently, the buyer is unable to obtain financing from the second lender and claims the financing contingency specified by NWMLS 22a has failed.

The original preapproval letter was material to the seller accepting the buyer’s offer.

And the winner is… the lawyers?

One would have to be rather cavalier (or naive or dumb) not to read all loan documents before signing.

Sympathy for those who don’t? Please… If you’re going to give someone a signed blank check, don’t complain later when they cash it.

Sure there’s a lot of paper involved. But most of it is boiler plate. If you need more than an hour or so (typical time) to thoroughly understand what you’re signing, take the documents home to study and bring them back another day. (It’s unreasonable to ask the signer to spend 3-4 hours to sign.)

Or ask your agent to attend signing with you. If your agent won’t attend closing, or doesn’t know what’s important to check, you can find a buyer’s closing table checklist here to use as a guide to get you started.

One of the documents you’ll normally sign is a statement saying you have had the opportunity to read all documents and that you do understand them. If escrow urges you to sign before knowing/reading what you’re signing, I suggest changing escrow companies.

Closing (at least here in Washington State using NWMLS forms) is defined to have occurred when the transfer documents are recorded (the deed) with the county, and, sale proceeds are available for pickup (from the closing agent) by the seller. The seller doesn’t need to pick up the sale proceeds, they may have chosen to have them mailed or wired somewhere. But they could pick them up if they had so chosen.

Both are requisite for closing to have occured.

Closing agents will normally not record transfer documents unless they also possess all the monies needed to conclude the transaction (not just from the buyer – it’s possible a seller may need to bring funds to the closing table). They need what’s called “good funds”. That means the money is actually deposited into their trust account.

Sometimes buyers get caught because they don’t know good funds are required. Just having a check, even if it is a certified or registered check, isn’t the same thing as actually having the required funds in their trust account.

Imagine the situation where a transaction is to be closed on a Friday. Escrow is running behind so signing ends up scheduled for the same day as closing (fairly typical late in the week, especially towards the end of the month which is when most buyers want to close because they’ll pay less interim interest. Don’t even think about closing the last days of the year.)

The buyers intend to use the weekend to move in. They bring in their certified check. Unfortunately they won’t be closing until the following Monday at the earliest because the closing agent needs good funds and the transfer documents must also be recorded. Since the county isn’t open for recording over the weekend or legal holidays, the earliest recording day is Monday.

The buyer could have wired funds to the closing agent trust account the same day and then escrow (the closing agent) would have had good funds. This is the procedure to use when the buyer is using the sale proceeds from the sale of their existing home to purchase a new home (and you’re not doing a simultaneous closing using the same closing agent).

The snag you can run into here is that the closing agent usually doesn’t send the transfer documents to the county for recording until mid-day or later. So recording numbers (confirming the docs have been recorded) aren’t available until later in the afternoon. There’s usually a cut-off time for wiring funds (typically 2:30pm). If the closing agent doesn’t have recording numbers prior to the cut-off time, funds will not be wired (and deposited) until the next day.

Same thing happens with lenders. Many/most lenders want to review the final documents before they’ll transfer funds to the closing agent. They typically need up to a couple of days for review, especially if the lender is located on the other side of the country (in another time zone).

Both the buyers and the sellers could have signed closing documents anytime before closing… days or even weeks before the closing date.

So why don’t buyers and sellers just always sign early to prevent closing delays? …Lenders.

If the closing agent doesn’t have docs from the lender they can’t prepare their documents (including the closing statement – HUD-1).

Your mortgage originator typically isn’t privy to the lenders back room. They won’t have the power to speed things up late in the game. To the back room/underwriter your loan is just another file, and they’ll get to it when they finish those before it.

That said, carefully choosing your mortgage originator will lessen the chances of closing delays because they’ll do what needs to be done to get loan docs to escrow before they become critical.

So the key points to a smooth, on-time closing are:

1. Let your closing agent know you’ll need a day or two to review the closing statement (HUD-1).
2. Choose your mortgage originator carefully (if you’re the buyer). Let them know up front a closing delay due to the lender being late with loan docs will not be tolerated. If you’re really on top of things, you as the buyer will want a day or two to review loan docs before you’re asked to sign anything.
3. Start early checking with the buyer’s lender if you’re the seller’s agent. Let them know the closing date specified in the contract is inviolate. You’ll need loan docs at escrow early because you’ll not only need to review the HUD-1 prior to closing, but you’ll need to sign early (did you mention you may be leaving town 3 days before closing?).
4. If you need to deliver funds to escrow (both buyer and sellers may need to deliver funds), don’t wait until the last minute.

Sometimes as an agent there’s nothing you can do to prevent a closing delay. It’s out of your control. Especially if you’re the listing agent with nothing but the lenders reputation to use as leverage. But starting early goes a long way.

I’m glad I’m not an officer at American Home. I’d fear for my safety.

Loose your home due to lapsed insurance coverage because payments you made weren’t forwarded… foreclosure proceedings because tax payments you made weren’t passed on by a loan servicer?

These may be just threats from posturing lawyers, but I can’t imagine anything more enraging to a homeowner.

Update: Ailing lender’s checks bounce

David Paul-

Good post and timely advice.

It’s been my experience (yeah, I too have to admit to being around in the 80’s) the situation where the buyer took a conventional first mortgage and the seller provided a second blindsided many a seller.

Sellers sometimes forget they have to be prepared to take out the first if the buyer defaults (on both mortgages) to protect their position. If/when a buyer defaults, most don’t just default “a little”.

Nevertheless, I’ve dusted off my copy of “Conventional Financing with Seller to Carry Second” addendum.

Jack Guttentag, The Mortgage Professor wrote a post last year recommending you save all your mortgage statements until your mortgage is paid off.

His post is even more germane today given the total revamping of the mortgage business landscape.

The first is Mortgage Ripoffs and Money Savers by Carolyn Warren. Rhonda Porter over at The Mortgage Porter has already posted a fine review. I concur with her comments although I’m not sure of her issues with the description of YSP (yield spread premium).

The second book I’d recommend is Mortgage Confidential: What You Need to Know That Your Lender Won’t Tell You by David Reed.

Both books cover much the same material about the ins and outs of the loan business, albeit in a different fashion. After reading both, any buyer seeking a home loan will be well prepared.

I always counsel my buyers that when you’re buying a home, it’s pretty much “what you see is what you get” (after the home inspection). With a home loan, you really don’t know what you’ve got until you’re at the closing table (although you can get some idea if you can review the HUD-1 first). And you might not know until sometime after closing if you don’t read and review the documents you should.

For those buyers not relying on an experienced expert agent for advice and guidance (nor already using a real mortgage professional like Rhonda), just spend the time and read the books.

If you’re an agent wanting to improve your expertise with respect to home loans, you’ll also be well served reading either or both.

There’s a lot of turmoil in the mortgage business right now, and some of the more egregious loan offers/procedures are no longer an issue… although you’d never know it from the dozen or so different ‘come-on’ radio commercials for mortgages I still hear every day offering no closing costs, no appraisal fee, etc… (what’s with that anyway??).

Buyers, you don’t know what you don’t know. You’re easy prey if you go loan shopping nude.