Charlotte’s San Francisco Real Estate Blog

Financial Contingencies must be a part of any offer to purchase real estate. As we all know, Banks are not our friends. Toasters and “What are you doing for fun this weekend” from the endlessly perky Wells Fargo tellers aside, any lender’s job is to protect the bank from risk. This may include changing the rules of the road, or the loan requirements pertaining to your loan even after you’ve gotten your approval letter.  But let me back up, in case you would like a review of what the Loan Contingency means.

A loan contingency is fairly straightforward, initially. It states that you are not obligated to purchase a property unless you are able to obtain a loan in the amount that you’ve said you need to borrow. So far so good. Your agent will usually put a loan contingency removal date of somewhere between 20 and 30 days as a part of your offer. During that time, the bank is ordering the property appraisal and demanding lots of information from you to verify income, assets, and the like. What has become the new normal and what troubles me deeply, is that your loan is actually never guaranteed to fund by your bank until it does. Really. A Bank of America loan officer who must remain nameless cheerfully agreed with me that my buyer is hugely at risk without the contingency in place and that Bank of America absolutely does not provide written assurance that any loan will fund.

 At any point in the process, up to the day you’re supposed to sign the documents, they can and do bring up new issues that may or may not be resolved to their liking. And if they aren’t, then no loan. Meanwhile, you signed off on the loan contingency waiver after you got the verbal go-ahead from your loan officer or mortgage broker and you are now on the hook to buy that property. Well, that’s ridiculous, says you, because obviously I can’t buy the property without the loan. Right. So the Seller is now entitled to keep your Good Faith Deposit. Now, an arbitrator may ultimately decide in your favor, but your cash can be tied up for months while the whole thing gets arbitrated. Ouch!!!

I asked Ilse Cordoni, President of the San Francisco Realtor’s Association what to do about this seemingly unfair degree of risk being born by you, the Buyer. She says that while most of the time things work out and the loans fund, it has happened that they do not and there’s not much we can do about it. The best suggestion is an offer that had a loan contingency that remains in place until the loan funds, but unfortunately that’s not an offer many sellers would accept.

What’s a Buyer to do? Stall! Stall stall stall. I avoid releasing the financing contingency until there’s some degree of mutual understanding between the loan officer and I that unless Hell Freezes Over and The Crick Runs Dry, the loan’s gonna fund.  Until I am at risk of being “kicked out of contract,” I want to make sure that you are as approved as you can be. Please don’t tell anyone!

For more information on writing offers, protecting your deposit, or purchasing real property in San Francisco, please email me at charlotteerwin@zephyrsf.com.