Contract Terms

Lenders are screwing everything up with these unrealistically short commitments.

So -- Big "I am not a lawyer" disclosure:

It sounds like you have two options: 1) close now to preserve your rate, and do a rent back to seller on seller's terms (I'm not sure what time period we're talking about here)

or 2) call "time is of the essence" -- which should be a push to force seller to close by 30 days after your on or about date (unless it's 30 days after you make the time is of the essence call-- any lawyers reading this?)

In this case you will end paying $5K to extend your rate.

I don't believe that you can just walk away from your contract at this point in time without penalty. It's not the seller's fault that your lender is issuing a commitment with such a narrow window attached.

ali r.
DG Neary Realty

as ali pointed out, Time Is Of the Essence letter will force the seller to sell or give you back your deposit on contract within 30 days.

we ran into the problem where the bank took so long that by the time we got the "clear to close" there was less than two weeks left before it expired, and this was right before xmas, a terrible time to close. Our buyer could not vacate until they closed on their new place in Jan., so we had to rent it back to them for about a week. They paid CC and tax, and our share of mortgage for the time they were there.

The leverage we had was that if our commitment expired then we would have to reapply which would take another month and set back their deal again. We also had a mortgage contingency which helped.

Ok I understand, thank you for the quick responses.

Just a follow up question, while the commitment was aggressive, it was within the terms of the contract, the last possible date stated within the contract, obviously without regards to the "on or about" date, if I understand you all correctly, the seller is not at fault still?

My lawyer said that the 30 days was based on when we actually got the correct mortgage commitment (there had been incorrect ones before) which was mid Dec, so the seller could hold off closing until mid Jan without any recourse for us.

Getting the correct commitment took so long that the seller's lawyer had to extend the mortgage contingency for a couple of extra weeks.

gkh108 - i wrote that last response before i read your last post. not sure if that helps at all.
NOTE: I AM NOT A LAWYER

mmarquez110, your situation is almost identical to mine, by the time I got my commitment, I had 3 weeks left before the commitment and the contract were set to "expire". A bit more complicated for me is, prior to getting into contract, the seller has repeatedly said she can execute the transaction and can move out right away if need be. Turned out she really can't, might not even be able to do it within 30 days (she actually requested 60 days). Furthermore, she is not willing to rent it at or even remotely close to the prevailing rate.

Do you know if the 30 days is absolutely 30 days of when you receive the mortgage commitment or is it 30 days from the end of the contract date? I've heard both thus far.

ghk108 - commitments from the bank are based on your rate lock period. So you actually made the choice by locking into the lock period (or perhaps the loan officer made the choice for you). But you shouldve known when your rate was expiring from the beginning. Of course, you thought the seller would be able to close sooner which is unfortunate. In hindsight, Im sure you wouldve locked into a longer period. Unfortunately, if the rate is expiring, you have little choice from the bank end to extend unless the bank is willing to help you with the extension cost. sunny.hong@bankofamerica.com

You are correct shong, in hindsight, if I were to purchase again, I would obviously lock in a longer period of time. In this instance however, the commitment does not appear to be based on my rate lock, my rate lock actually expires almost a week prior to the expiration of the commitment. I am not an expert, so if this is actually a common occurance, then my apologies.

ghk - mortgage contingency stated 30days - I think our lawyer had that extended multiple times until early Dec. I believe that if we didn't have the commitment within that time frame then the seller could cancel if they wanted. Of course they didnot want to except as a last resort.

I just looked at our contract. It says closing should occur 45 days from contract signing which would have placed the closing us around 2nd week of december. I believe the 30 days rule was based off of the 2nd week of december (i.e. the scheduled closing date) which would have put as at the 2nd week in January. That's the only info I have, you really should talk to a lawyer on this one.

What was really annoying was that the bank would not extend the rate even though the situation was entirely their fault. You may want to consider pressuring the bank to extend the rate at their cost if it is their fault. We didn't have enough leverage to pressure the bank to pay for the rate extension because they knew we weren't going anywhere at that point.

I dont think there is any reason your commitment shouldnt be extended as long as your financial situation hasnt changed. Although you probably have to pay for the fees. But you mentioned that youre purchasing in a building that banks are having a tough time approving. I dont know the full details but this may be why theyre laying down stricter timelines. If you know another lender lending in the building then another option is to apply with them as well. Then you can compare costs to see which bank would be more cost effective to close with. But if theyre the only lender lending in the building then it seems like they have all the leverage.

gkh:
You may want to double-check the terms of your rate-lock and extension fees with your loan officer, because you may have more than one option when the rate lock expires. When our rate lock was expiring, our lender kept teling us we'd have to pay a significant fee to extend it. But in reality, there were 2 options:

1. Pay a fee to extend the rate (0.25%, I believe)
2. Get a new rate lock at the HIGHER of the original rate or the prevailing market rate.

It turned out that mortgage rates had declined since the rate lock, so I was able to re-lock at the same rate without paying any fees. Not sure if this could work in your case, but rates are generally flat to lower over the past 30-60 days.

It is difficult to understand why a lender would be unwilling to extend and re-lock (without fees), when they have a rate in-hand that is higher than market. (All provided the financial situation hasn't changed, as shong said.) Unforutnatlely a borrower's only real leverage in this situation is to obtain a new commitment from a new bank...which of course creates more delays, another appraisal, paperwork etc. But if your seller wants to delay anyway, it may be something worth considering.

Looking back, it may be that none of that matters here. 30-days ago does look higher, but 60 days ago would have been right around the bottom on rates in the last 6 months...

Yes, we can potentially get another rate lock, that is an option; however, that is contingent on the bank willing to extend the commitment, which I still don't have an answer. The rate expires in 2 days and the commitment expires in 5 days. I don't have a confirmation on commitment extension, a potential/possible closing date since the seller and her attorney are MIA when responsibilities fall on them, I have a loan officer who is not the sharpest tool in the shed, I can't decide whether to lock it for 30 days or 45 days because I don't have a commitment extension or a possible closing date, and the seller is refusing to close early (albeit the date specified in the contract) if she has to pay what normal residents pay in terms of rent (or even remotely close).

Those are my obstacles.

mmarques, shong and seg, thank you for your advises, very much appreciate it.

Hi, I am sorry for your predicament, I know it is frustrating. I am in contract on selling my apt and when I asked my lawyer what "close on or about this date" meant in legal terms he said two 30 day extensions are deemed "reasonable" by the other side.

When I said I didn't want the possibility of it extending that long past our already agreed date he said we could put in the clause "time is of the essence" meaning if they didn't perform on that deemed date (thro no fault of mine) that they would lose there deposit.
Apparently this clause is quite rare except in commercial real estate and the buyers lawyer wouldn't agree to it. However we did come up with a clause which was the middle ground that insured they had a maximum of 30 days extension final.

So from a legal stand point (even thou I am not a lawyer)I am surprised that the seller offered any rent as it is within there right to stay the additional 60 days without any payment.
From a human point of view, it depends on there circumstances: would they be getting the use of the funds from the closing ?(while they are still in the apt) if not and it is just going in the lawyers escrow account with minimal interest then they are are also being restricted by your desire to settle at the soonest possible time.

PS I think the legal term "on or about this date" is NOT at all clear like a lot of legal terms is at the cause of problems for a lot of contracts.

Good luck.

Hi Gabrielle, the seller offered to pay "rent" is because the bank might not extend the commitment, which means the entire deal is down the drain and she loses out on a sale. A sale that rarely happens in the building due to their unique situation in regards to owner ratio.

@gkh,

If the bank has approved you and the building (which they have) it seems like a slam-dunk that they will extend that commitment through closing. The question is bureaucracy and pricing -- which I'm sure are aggravations to you -- but you'll get your loan.

What you need to figure out is the cost of the loan extension versus the hassle of closing now and doing a rent-back to the seller. To me, the seller being unwilling to pay market rate is not an issue; you are not a landlord/landlady. All seller really needs to do is to cover your prorated mortgage and maintenance so that you are not floating a unit that you can't use. In fact, seller is saving you $$, because you don't have to pay to extend your rate.

However, many real estate attorneys prefer that property be delivered vacant to minimize the risk that the seller doesn't move out... IMHO, I think it's easily worth $5K to avoid that risk, especially since you don't seem to have a lot of trust in seller.

@shong, I hear your reasoning as to why lenders are keeping commitments short, and it does feel like we are talking about a condo here -- but we are seeing commitments so short on co-op loans that there is no way that buyer can get through board process before expiration. I had a client just get 40 days -- there's no way that's enough time for a co-op, especially because the bank attorney ate nearly a week of that by doing the Aztechs wrong twice.

ali r.
DG Neary Realty

I don't know the specific situation but maybe it is possible that the current tenant actually cannot afford to pay gkh's maintenance + mortgage?

ghk - Maybe you can compromise somewhere between what it would cost you to extend the and what it would cost for you to "rent" it to them at a lower rate? You may need to push the seller and threaten to walk on this. Convince them that they're not going to get a higher price any time soon, and likely even a lower one?

Is there any chance that the seller is purposefully stalling on this? Are they trying to buy another place to live in? IF this deal falls apart it will snowball and affect their purchase.

I'm trying to work out the details, the seller has agreed to pay rent, however, will not provide some sort of security deposit to be put into escrow for any damages done to the unit after closing while she stays there. This is really turning out to be a sticky situation.

Just a quick question to those who have experiences with this, the term "Time is of Essence" what does that mean? Let's say I send out a Time is of Essence Feb 1., so on March 2nd, what are the options?

Also, to my understanding, the time is of essence is anywhere between 2 weeks to a month after the date specified by the contract. In this situation with the on or about date of February 1st, how would that translate? Any help is greatly appreciated.

That's kind of ridiculous that they won't put money in escrow. If they are renting from you, then you are the landlord as such should be protected. Is it possible to leave some of the downpayment money in escrow?

hi ali - i agree, our commitment periods are determined by the rate lock period. Buyers always have the options of locking into a longer term. But because they want more competitive rates they take the chance on locking in for 60 days or even less. I have not had any trouble closing from beginnng to end within 60 days even on coops. But I guess some boards take longer than others.