Don’t miss the $8,000 home buyer tax credit expiring November 30!
This has been a hectic couple of weeks in San Diego. First-time home buyers are scrambling to take advantage of the first-time home buyer tax credit that is scheduled to expire on November 30, 2009. But time is getting tight. For all practical purposes, this means that anyone who wants to take advantage of the tax credit has only about a month to find a home.
Under ideal circumstances it takes a minimum of 30 to 45 days to buy a home in San Diego, CA. This includes the time required to identify the property (a week to 10 days would be fortunate), 5 days to negotiate offers and counter offers, followed by a 30-day escrow period. Delays have become very common at the end of the purchase transaction. These “Closing Delays” are typically the result of last-minute file reviews and bottlenecks with the Buyer’s mortgage lender. There can be other reasons, but delays with the mortgage loan are the most common.
Banks have become more thorough, to the point of knit-picking, with their underwriting review processes. It is completely understandable that the banks would want complete documentation of the borrower’s credit scores, bank accounts, account activity, debt payments, and the like. But it is amazing and discouraging when requests for additional information arrive just days prior to the planned date of Close of Escrow. The home Seller has moved out of the house, the Buyer’s moving van is out front, and a request comes in from the lender for Buyer’s most recent pay stubs or savings account statements. Even a simple request means a delay of a day or more before the bank sends loan documents to escrow.
If the home mortgage loan is not funded by the date of Close of Escrow that is specified in the purchase agreement, then the home buyer is technically in breach of contract. The standard California Residential Purchase Agreement allows the seller to give the buyer a written “Notice to Perform.” The recipient of a written Notice to Perform will then have 24-hours (or some other amount of time upon agreement), to “cure” their breach of contract. If there is no cure in the allotted time, then the Seller can cancel the purchase agreement. The Buyer’s good faith deposit becomes liquidated damages payable to the Seller.
Cancellation of a purchase agreement by a home seller is a worst-case scenario for a home buyer. Fortunately, most people who list their homes for sale in San Diego really do want to sell their property, not cancel a contract. So the Buyer’s Agent should notify the Seller’s Agent (Listing Agent) immediately at the first sign of delay of a mortgage loan. Even before trouble sets in, the Seller and the Listing Agent should be told that the Buyer will work diligently, but that delays related to banks and loan documents are common. Don’t assume that all home sellers and listing agents will automatically expect delays and be understanding when delays happen. A good Buyer’s Agent needs to work hard to make sure that everyone is on the same page.
To plan ahead and help our clients avoid delays with the mortgage loan at the end of the home buying transaction, we have a strategy. First, whichever San Diego mortgage lender our clients decide to use, we advise our clients to provide their lender with complete documentation as early as possible. The lender should have everything they need for loan approval, other than a property address. Then, when a property is identified, the lender should be immediately notified to begin loan processing and to order the appraisal.
Missing documents should be returned by the buyer within 24 hours after the lender’s request. I recently had a Buyer/Client tell me on day 14 of a 30-day escrow that the bank had requested a few more documents. It was Wednesday, and the client said she’d get the documents to the bank the next week; Bad idea. Delays with providing requested information will exasperate delays with processing, as inevitably the file will become buried on the loan underwriter’s desk after only a day or two of inaction. If the bank asks for documents, provide them right away.
Loan documents should be requested about a week before the scheduled close of escrow. If loan documents haven’t arrived 48 hours prior to close of escrow, expect delay with close of escrow. Loan documents are prepared by the bank and sent to the escrow company. The escrow company spends a day printing and organizing the loan documents and remaining escrow paperwork. The Buyer then goes to the escrow company office and signs the loan and escrow documents. The loan documents are then sent back to the bank, and the bank processor orders the loan to be funded. When the loan is funded, the Title Company is instructed to record the new title. Recording of property purchases at the San Diego County Recorder’s Office only happens once a day on most days, at 8:00am. So loans that are funded at noon won’t record and close escrow until the next day. All of this takes time, so it ideal to have the loan documents at escrow 5 to 7 days prior to the closing date.
We’ll often request a 45-day escrow in the purchase agreement, and then verbally inform the Buyer’s lender that the parties need to complete a 30-day escrow. The bank, of course, will have a copy of the purchase agreement, so we don’t mislead the bank in any way. But shooting for an early closing date will give some padding at the end of the transaction. That way if there are delays with the home loan there is no breach of contract by the home buyer.