What can my client do if the buyer’s lender won’t be ready for the closing date?

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01/20/2017 | Author: TAR Legal Staff

My seller client is ready to close, but the buyer’s lender won’t have the loan processed in time for tomorrow’s closing. What can my client do?

Since the contract does not include an automatic extension to allow the lender time to complete his role, your seller has two options. He could amend the contract to extend the closing date to allow the lender time to process the loan.

Another option is to consider the buyer in default. However, since time is not of the essence to the closing date, the buyer might argue that a short delay in closing is not a material breach of contract. This issue may end up in court.

Read more questions and answers in the Legal FAQs section of texasrealestate.com.

Categories: Legal
Tags: legal, legal faq, closing date, lender


David Davis on 01/29/2017

Just as Rick mentioned the phrase used to be in the contracts.  The Broker-Lawyer Committee removed it for several reasons.  One of which was trying to enforce it.

However, as I have stated elsewhere in this thread the Broker-Lawyer Committee who is charged with creating and revising contracts for us to use, and submitting those contracts to TREC for approval (promugation), that will ultimately help us get a deal successfully closed and funded (the ultimate goal) holds open meetings.  Here is the schedule: https://www.trec.texas.gov/newsandpublic/meeting.asp.  You can submit your requests for changes to them in writing via email.  If you use a search engine and search for TREC Broker Lawyer Committee you can find the names of the people on the list and their phone numbers.  Call one of them and ask to send them an email with your concerns.  I happen to have Charles “Chuck” Jacobus’ email and talk with him from time to time.  He is one of the Attorney members of the Committee, and he will pretty much shoot straight with you.  I don’t burden him with a bunch of meaningless “what-if” nonsense but when a real “sticky” legal question comes up, he’s my go-to along with the TREC legal hotline.

At the end of the day what you have to remember is the contract forms are designed to do one thing.  Hold the parties (buyer & seller) together.  TREC, who promulgates these contract forms is a CONSUMER PROTECTION AGENCY!  They also happen to be charged with licensing of real estate brokers and licensees.  Everybody wants instant gratification.  It’s human nature.  But the truth of the matter is, more often than not it’s not going to be instant.

I see comments on here from Agents talking about communicating with lenders and that is a great start.  TAR has a form TAR-2516 “AUTHORIZATION TO FURNISH
TILA-RESPA INTEGRATED DISCLOSURES” that is partially designed to help establish communication between the lender, escrow company, title company and Agents, but I am hearing stories (outside this thread) of lenders and title companies that are not honoring this form.  It’s sad that at the end of all of this that someone is going to end up getting sued to make a point.  I think the lenders and title companies alike need to take a step back and realize what they have at stake here.  If we as Agents don’t supply them with the business where are they?  All too often I hear lenders and title company representatives say that they have “Clients” when what they really have are “Customers.”  They do not owe them any duties of agency, nor are they a fiduciary which many of them like to so loosely claim to be.  I’ve even heard some “loan officers” claim the borrower was the fiduciary.  It was all I could do NOT to explode laughing in his face!

When the TRID came out we were warned to start positioning our clients and customers for 45-60 day closings.  This goes back to the communication part.  Talk to your lender.  Ask them questions.  If you are working with the seller, still ask questions.  It’s your job.  Advise the seller that an offer that appears better than another offer based solely upon how quickly it will close if it involves financing is not necessarily the better offer.

Rick DeVoss on 01/28/2017

This topic has perplexed real estate agents for a long time.
We all need to remember that the lender is Not a party to the contracts that we are referring to.  ~Perhaps the buyer should enter into a contract with the lender, and put some teeth in it.  (Make the lender pay the fee for any extension of the closing date.)

Years ago, the phrase “time is of the essence” was in our contracts.  The Broker/Lawyer Committee took it out.  Too many problems trying to enforce it.

Agents are always in a hurry to close, as that is when we get paid.  And who is the person who typically puts the “closing date” in Paragraph 9…??  We need to be more careful when writing a contract, and we need to be very aware of which lender the buyer has chosen to work with.

All buyers should be pre-qualified by a loan officer before contracting.  But I also make it a practice to sit down with the buyer, and “pre-qualify” them myself.  ~If you ask the right questions, you will learn a lot about the buyer’s resources and capabilities.  It is fairly easy to describe the process of loan approval to the new buyer, and you can inject your questions as you go along.  When you’re done, you will know if there might be any problems looming on the horizon, and, the buyer will have a better education of the whole process of buying a house.

Why not just ask the loan officer how long they will take to close, and then put that amount of time on the contract?  (...plus a few days…) 

I tried that recently, and it Still did not guarantee a closing on time!  (The buyer had selected the second largest bank in the country, and they could not meet the closing requirements.  ...And this was a case where the buyer had been pre-approved for a loan on a different property, and then we switched to a different address.  You would think that all that was needed was a new appraisal, but be careful how you make assumptions.)

Using smaller mortgage companies seems to produce better results.  New agents should ask their office mates which lenders they recommend.

But the best advice given in this blog so far is to make sure the parties do not have unreal expectations up front.  Keep everyone advised of the progress of the file, and don’t wait until the last minute to seek an extension.

Roger Phillips on 01/28/2017

Robert….Be careful, it’s sounds like your practice could be construed as practicing law.

Robert Shaffer on 01/27/2017
I have always put the following in my contracts, whether it is cash or financing.  “If the lender, title company, escrow or surveyor cannot perform by the original closing date this transaction shall automatically extend an additional 10 business days without further signatures.”

Dee Pardue on 01/28/2017

I do agree that the seller needs to have better legal protection when it comes to the closing date.  But with the current laws and contract it isn’t to the seller’s advantage to terminate and place home back on the market or ask for a per diem penalty for delays.  They just have to wait and hope it eventually closes.  We need laws to protect sellers from these arbitrary delays in closings.  Lenders need to let us know up front if a closing date is not likely to be met.  Time should be of the essence here.

Sheila Lacher on 01/28/2017

This is a big issue that really needs to be addressed by TREC. The seller is not protected by any laws, rules, or regulations, from a buyer who delays the closing either purposely or unintentionally. The seller can’t get out of a contract that stalls at the buyer/property approval stage, without legal means. The mediation/arbitration threat clause does not mean anything to a buyer who is bent on taking advantage of the lender approval clauses.  A seller is forced to move forward with buyers who in-
tended to defraud the seller(s) before their contract was executed.

Dee Pardue on 01/28/2017

Correction: I ask the lender to include me on updates…

Dee Pardue on 01/28/2017

There is probably nothing more stressful in our business than delays in closing.  But unfortunately it is happening more and more with all the new regulations.  I also tell my sellers and put on their “pre-closing checklist” that the contract close date may or may not be the day we close and let them know we often have delays.  I do assure them I will stay in touch with the lender to keep them updated as the closing date approaches. I also require the buyer’s lender to assume me that I will be included on updates and I have a direct phone # and email for the lender.

Gina on 01/28/2017

I have tried almost all my career to figure out a way to get my deals closed on time.  I think the same way as some of you that Lenders should have respect for the contract closing date.  But that’s not realistic, it wont happen with all the different lenders in and out of the business. If you find a couple of strong loan officers who tell it like it is instead of blow smoke, hold on to them.  I’ve worked with a handful of lenders and can say that 2 of the loan officers in my career have really worked and did their job. For instance last year,  60% of my deals closed within 1-4 days after the contract closing date. 25% closed within 2 weeks and 15% took up to 30 days.  This is a real challenge but I trained my transaction coordinator what questions to ask and the follow up process I do.  And as far as the “Time of the essence” verbiage or other verbiage inserted in the contract, I’m afraid that may aggravate the lenders more than help. The last thing you want is a lender who wont call you back when you need to know what is going on so you can inform your seller. All parties need to work together to get the deal closed. Just set up the expectations at the buyers or sellers presentation and I guarantee this will alleviate so much of the stress.

Stuart Scholer on 01/27/2017

Robert S.:
Be careful…. If you ever find yourself before a Judge or a TREC investigator they are probably going to fry you and an opposing attorney will eat you up!

David Davis on 01/27/2017

Robert Shaffer,
I can almost guarantee you that, that invalidates a contract for one simple reason.  It calls upon performance by NON PARTIES.

Robert Shaffer on 01/27/2017

I have always put the following in my contracts, whether it is cash or financing.  “If the lender, title company, escrow or surveyor cannot perform by the original closing date this transaction shall automatically extend an additional 10 business days without further signatures.”

Some lenders are extremely slow but it takes experience and frustration to figure out which ones.  And it may be costly.  Or you could always use a 60 day time frame.

Tracy Homuth on 01/27/2017

Lenders are not all the same. I had a lender for 15 years that NEVER missed a closing in all that time. The large banks are all deficient in processing loans. It’s high time that the lender, once they have committed to making a loan, be held liable. In my business if I have a client that chooses one of these lenders (we all know who they are) I make certain to explain the risks in defaulting on the purchase and if they choose to go ahead with that lender I let them know I bear no responsibility.
I never forget that my responsibility is to MY client and I believe advice on choosing a lender is crucial to our success.

Marilyn Newland on 01/27/2017

I forgot to state that I also tell my sellers that the closing date on the contract is not necessarily when we are closing. I explain that we have a ton of people involved in this and if just one of them drops the ball, including the buyer, then we are going to have delays. So they go into it knowing there may be delays and they can choose not to extend - obviously, this is an issue when they are in contract on another home. I like the idea of a daily charge to the buyer who doesn’t close on time - ultimately it is their responsibility . If the delay is caused by the lender, then the buyer needs to be pushing that lender to pay for that. I don’t think there is one perfect answer. As long as we have human beings involved in these transactions, there are going to be issues.

Marilyn Newland on 01/27/2017

Brian, I agree totally with your comments about the workload for lenders; my daughter is a senior underwriter so I have perhaps a little more knowledge of the closing process than some. The first time I meet with a buyer, I hand them a list, provided by a wonderful lender I work with, that lists what they need to start preparing for the loan officer. I also talk with them about their financial situation enough to find out if they have any resources ; if they know their FICO and what is it, do they have anything in their background that I already know is going to cause problems. So if they tell me their FICO is 550, I’m probably going to tell them upfront that the chance of them being approved is very slim. I then give them the name of a couple of lenders who can work with them to get their credit score up . If after meeting with a lender, they are then able to move forward, then I’m ready to go. Some of the problems encountered in closing occur because some Realtors don’t bother to ask any questions and make sure these people are able to close before they even spend time to get them in contract. I think it’s a disservice to the buyers, especially first time.

Colleen on 01/27/2017

Bryan, I see you talk about setting expectations. It really bothers me when a lender has no regard for the date that is on the contract. There needs to be respect for all parties. If you can’t get a deal done in the required time you should be telling somebody at least 5 days prior. You can’t just show up at the Olympic Games and say I’m not ready. It just really should not work that way. There needs to be a line on there stating what the penalty is for not closing on time. I think that would push more lenders to be timely in their actions. I always set the expectation for my sellers, however a three-week delay is not that expectation

David Davis on 01/27/2017

There is no discussion of commissions allowed for comparison purposes as this is an open forum.

Stuart Scholer,
In your question about the extension amendment, yes that new date would be treated the same unless its conditions were also amended.

You (not unlike several others here) have said you would like to see “time is of the essence” added into the contract.  Did you know that the Broker-Lawyer Committee who is charged with redesigning the contract forms for submission to TREC for approval holds OPEN meetings?  You’re invited to attend those meetings and give your input.
What you also need to understand is that committee is charged (in connection with TREC) with providing us with contract forms that we can use that will help us keep a deal put together and held together until closing.  After all that is the ultimate goal of a contract.  That’s a pretty steep order to fill.  If you don’t believe me, attend one of the Broker-Lawyer Committee meetings sometime and see what goes on.
So, if you think the language should be changed, submit the change to one of the committee members and then follow it through.

brian on 01/26/2017

as a banker and hearing all the realtor comments here, i find it amusing to be included at all in the contract between a buyer and seller. Everyone in our industry has had this issue before. Or you dont do any volume. Bankers jobs these days have more than tripled with all the new regs, Agents were warned they needed to set proper expectations, and increase contract times, and still the majority of contract close dates remained at thirty days, there were only a few comments here that were written with any sense. The pile of paperwork at the end of the transactions now, including appraisal, verifications and closing docs, have grown to almost a foot high. The banks job has about 7 people minimum that need to review any one loan, and that is one without a client financial glitch which more than twenty percent of loans written now have some sort of issue needing or requiring additional reviews or docs to satisfy the needs of our wonderful Dodd Frank and or trid guides. Todays loan officer has to close double or even triple depending on his comp plan provided by the bank, in turn an LO must be working on double or triple the files a realtor must, to make anywhere near what a realtor makes,and do literally ten times the amount of paperwork, WHere each item if not done correctly could cost the LO and the bank thousands in fines and fees,, and all the underwriters are also at stake as well, so many have to work in in fear of almost every condition they sign off on. I think the realtors should be responsible to assist the lenders and have their clients basic initial docs to hand in with their contract.  Realtors can only understand the work involved of a lender if they become one. I am sure they would quit after their first week , as a bankers job truly is no longer worth it. :Lenders make half or less per transaction, and take all the heat,  Find A great lender and stick with them, accumulate a few , and refer the right ones who care,if they care, they work, and get their job done, the only blame needs to be on Dodd Frank, and our government, Before the mortgage collapse, none of these complaints were heard of anywhere near as often. the continuous layers upon layers of approval processes for each loan has killed it for so many buyers, so the ones who dare try get penalized , and the lenders that take on tough loans get killed by impatience of agents and sellers while a lender loses sleep that he may be at risk of losing a great relationship over a borrowers financial issue he is working through. At the end of the day it is always the financial issue of the borrower, not the lender. Excusing the inexperienced LOs of course. SO it is a give and take, everyone needs to just work together and keep the clients calm while everyone works to the same goal. Just get what the lender wants as fast as possible and as mush as is requested and your loan will close fast.

Gina Garcia on 01/26/2017

I go through this frequently.  As a rule a thumb I educate the sellers on how the loan process goes and what can hurt our chances of closing on time.  I and my transaction coordinator follow up every week with the lenders to see where everything is at and if we hear there is some issues from the buyers side or with the lender, we try to help to move things along if we can. But at the same time, we let our sellers know and it’s usually not a big surprise because we have educated our seller at the listing appointment and at the contract signing appointment.  So they way I see it is why fight it and get upset. The best way to handle all this is to educate the client and set up expectations for what may or may not happen. Being in the business for over 18 years I have seen a lot of delays from the lenders to the appraisers, to survey issues and even issues on title that popped up 2 weeks before closing.  You just have to educate, educate, educate and always keep your seller informed. That keeps a seller happy with you and knowing you have done all you can to make it happen and make it happen on time.

Gary on 01/26/2017

We recently had a situation where the lender took their sweet time to close THREE WEEKS late. When the seller threatened to pull the plug, the lender told the buyers not to worry. There is not one d**n thing the sellers can do. We will close when we are ready.  And the lender was in no hurry.  With lenders abusing the situation such as this, I would like to see “time is of the essence” in the contract forms. Put these lenders on a timeline.

Stuart Scholer on 01/26/2017

Here is one more question….
If the Seller gives an extension…. is the new date also without “time is of the essence”?
As a Listing Agent I do not always recommend an extension. Sometimes the Seller will say no and just wait a few days. I had one that waited almost 3 weeks. He signed the extension at the closing table. I was gettin’ beat up from both sides.  Whew!

Jeanie Turk on 01/26/2017

Really appreciate many of these comments. I believe the Seller has been left out and is often at the mercy of lenders that are hired by buyer’s that do not fully understand the importance of having a lender that is competent and actually pays attention to dates on a contract!

Stuart Scholer on 01/26/2017

My question is rhetorical… “short delay” is in the TAR original answer to the question.
As a Listing Agent, I always encourage my Sellers to be reasonable and to expect 45 days in general. If they insist on a shorter close then I warn them to the possibilities.
I like the per-diem idea but wouldn’t write it in myself but it should be reasonable also.
I have represented many Buyers that were aloof and not diligent with their Lender requests. The per-diem penalty could change ratios for a Buyer of a lower priced property and create new problems. 
  But still the question is…. when can the Seller declare “Default” and put the property back on the market and have the backing of the contract??? Seven days, 10 days, 14 days??? Should his Agent say “I don’t know… consult an Attorney”?

Amber McGill on 01/26/2017

Perfect and easy explanation Pat Dickey.  Well said and simply stated.

David Davis on 01/26/2017

Stuart Scholer,
If you’re asking me (since I’m the one who used the phrase short delay) I said 7 days or so.  Again, unless the contract says otherwise, the closing date is NOT time is of the essence.

I would not recommend trying to “sneak this phrase into special provisions”.  As a broker I typically instruct new agents to leave that paragraph alone.  A good rule of thumb is this.  Each word you put in that paragraph is going to cost you $10,000 in commissions.  Can you afford that?

Stuart Scholer on 01/26/2017

So….. What is a “short delay”?  Definition please….
What if the Seller is a Buyer of another property such as a new home construction without a contingency and now finds himself being squeezed or even cancelled by the Builder? What a nightmare!

David Davis on 01/26/2017

Betsy Doss,

The thing that you are not taking into consideration is that those foreclosing lenders have special addenda that are made part of the purchase contract that allow that per diem charge.  Those addenda are drawn by attorneys that represent the lender who owns the property.

If you attempt to add the per diem to the contract (special provisions-the only place it’s going to fit-there’s been talk about reducing its space to prevent such stupid mistakes by licensees) there is a strong possibility that you could invalidate the contract entirely or find yourself in the waters of the unauthorized practice of law.

Rian on 01/26/2017

Thanks Betsy Doss for that comment! This is enlightening!

Pat Dickey on 01/26/2017

When we see that the buyer will not be ready to close on time because all paperwork not completed on time, survey not in on time, or most likely, the appraisal is not completed on time, or they got the appraisal, but loan not out of underwriting on time,  we should make every attempt to get the parties to extend the closing date then, and not wait until last minute (day before closing)  is my best practice way in which I try to get it done.
Yes, not always what Seller or Buyer wants to do, but understand that we don’t control all those other necessary services.  I take a deep breath and try to be the calm voice of reason and get the signatures done so we can get to a close date , and without adding any more legal issues.  Happy New Year.

David Brock on 01/26/2017

This has become so regular lately I have been thinking about adding a per diem to special provisions that state if the closing is delayed beyond the closing date at no fault of the seller, then buyer shall pay to seller a per diem of $xx.xx at closing.

Betsy Doss on 01/26/2017

Sellers of foreclosed properties charge a per diem for any extension beyond the closing date due to Buyer delay, which is usually a lender delay.  This can be put into the original contract (as REO Sellers do) or , when agreeing to an extension of the closing date, Sellers can say they will extend with a per diem penalty of a certain amount for each day from original date to closing and funding.  Buyers do chose their lenders and need to do their due diligence as to that lender’s track record for closing on time and make sure they have a realistic close date for the type of financing of the transaction.

Rian on 01/26/2017

As a listing agent who has been in this situation many times, I have to ask: when are the contracts going to be amended to hold the buyer and/or lender responsible for these delays? The current options available to sellers are extremely limited… a) allow the buyer/lender to close late, b) cancel the contract, or c) take the buyer and lender to mediation/court?! Option A allows the buyer and lender to do whatever they want, and options B and C are too extreme; there is no happy medium. There should at least be some small financial penalties if a closing delay is the direct result of the buyer or the lender. I understand that there would need to be certain language in place to make sure that the financial penalties are in play for the “right” reasons, but I think this is a paragraph that is definiately needed either in the third party addendum or the residential contract.

Stephen Swisher on 01/26/2017

Make sense!  Thank you for the options mentioned.

David Davis on 01/26/2017

Lisa Creed,
This is going to be a case of what caused the delay.  Did the buyer act in “Good Faith?”  If it can be shown that the buyer’s actions were deliberate to cause delay or cause financial burden or harm upon the seller, then they would culpable for that damage.  If on the other hand the delay was beyond the buyer’s control and within reason and typical market expectations (for example a few [less than 7] days) and the lender was diligent in completing last minute underwriting tasks, it is highly unlikely that any judge is going to award in favor of a seller for specific performance on that short amount of time, especially without any actual damages associated with the event.

Now with all this being said, none of this relieves the parties from the need to get an extension amendment to the contract, nor is what I’m saying intended to be legal advice.  I’m simply stating what my 20+ years’ experience has seen, and a little bit of the TAR staff telling me that the closing date is NOT time is of the essence on more than one occasion unless it is specifically stated to be so elsewhere in an addendum.  Some special addenda (such as working with REO) could state that it is!

Lisa Creed on 01/20/2017

So, my question ... Is TIME OF THE ESSENCE to the date for possession? EX: Seller’s date in vacating the property when the buyer has not met close date.  Is the date of possession considered to have any bigger teeth?  (whether by lease back or at close and fund)

It is difficult to explain to a seller that some dates in the contract are without merit or penalty for complying with the contract.  I’ve always explained the close date to my sellers that “The contract says it will close on or before this date; however it SHOULD more accurately read ‘on, before or JUST AFTER’ this date.’ 
I try to explain these are expectations but there are so many others involved but not necessarily bound by the contract dates.

David Davis on 01/20/2017

Option 2.  Another option is to consider the buyer in default. However, since time is not of the essence to the closing date, the buyer might argue that a short delay in closing is not a material breach of contract. This issue may end up in court.

Is almost certainly going to wind up in court and the seller is not likely to fair well in this circumstance unless the buyer is really slow on the loan, or the seller can prove significant financial damage.

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