Filed under: Temecula Real Estate. When we write an offer on a piece of real estate in California, you automatically have a day contingency removal clause. Do you know what this means and how it applies to your transaction? A loan contingency removal means the buyer has 17 days to inspect the home, appraise the home, and make sure they are going to be fully qualified for the loan before the deposit is turned over to the seller.
Further negotiations can happen if the seller needs to cover the cost of repairs. I often get questions from my buyers: when does the deposit get released to the seller? Technically, two things need to happen:. This process gives the seller the protection of knowing that this transaction is moving forward.
Depending on the type of loan, the lender might require certain property conditions or repairs to make the loan. If the sellers and buyers cannot agree on the repairs or lender conditions, the buyer will not receive the loan.
The transaction will be voided. The buyer has a certain timeframe in the purchase contract to obtain the financing. In some instances, the contract might give the buyer a choice: There might be a certain number of days before the loan contingency will need to be satisfied, or they can keep the loan contingency in place until closing. Most sellers expect that a buyer will need to obtain financing.
Sellers are often fairly reasonable. In many cases, they will allow a certain period of time to pass for the buyer to obtain the financing and remove the loan contingency.
But not every seller will want to wait until the day of closing to find out if the buyer is indeed able to close escrow. It is not very fair to a seller for a buyer to ask for a day closing period without a firm commitment to close.
On the other hand, if a seller removes a loan contingency prior to closing, a buyer might become very nervous. Long closing periods make sellers nervous. It may appear that a buyer does not have the means to purchase or make an offer. A buyer might wonder what would happen if the lender rejects the loan for an unforeseen reason. Or, if the buyer had removed the loan contingency, they might be at the seller's mercy.
In that case, their earnest money deposit could be at risk. Few buyers are willing to take a gamble on losing their money. Many buyers obtain and present a preapproval letter prior to making an offer. The seller may rely on the preapproval letter as proof of the buyer's creditworthiness and ability to qualify for a loan. But after the file is ready for underwriting, other problems can pop up that can stall the process.
Preapprovals simply state that a buyer has the income to support a mortgage payment. It does not look into any other factors. Preapproval is not a guarantee of loan approval.
Title searches are conducted, as well as credit and income checks. Unknown judgments against the property can appear in the public records. Or, a buyer might have a blip on their credit report that had slipped through the cracks. Don't forget about the second type of loan contingency: the appraisal. The appraisal contingency is often separate from the loan contingency. An appraisal contingency means the home must appraise at the purchase price.
If the appraisal is less than the purchase price, then the buyer can cancel, providing the buyer has an appraisal contingency in the purchase contract. If the seller agrees to lower the price to meet the appraisal, the buyer is then expected to remove the appraisal contingency. In California, the contingency removal date itself is not what actually removes contingencies. Rather, it's a buyer's submission of the contingency removal form.
If the contingency removal date is March 1, and no form has been submitted, that day can come and go and contingencies will still exist. Contingencies will only be removed when the buyer submits the removal form; and that can happen before, on or after the removal date.
Once the removal form is submitted, the sale can move forward. Essentially, in California, the removal date can be thought of as the deadline for buyer to submit the removal form. If the buyer fails to submit the form by the date outlined in the contract, then the seller can take steps related to a buyer breach. This can include serving a notice to perform or seeking to cancel escrow.
Do you have questions regarding the contingency removal date and form? Ask us.
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