Your Buyer (the Borrower) has provided all the documentation requested by the mortgage originator in a timely manner, however the lender cannot close within the rate lock period (or the contract close date). The lender is now asking for an extra $1,000 (or more) to pay for a rate-lock extension. The lender says that the hold-up is being caused by the property appraisal not getting done on time, and that this unforeseen circumstance is outside of the lender’s control.
The timely production of the appraisal is, in fact, outside the control of the lender. Of course, it is also outside the control of the borrower. When a rate lock expires (or financing contingency period expires) for reasons outside the control of both a borrower and a lender, it is the borrower who typically bears the consequence of this predicament. Some lenders will not permit a borrower to lock until after the appraisal has been received; however, untimely delays in completing the appraisal may cost borrowers if otherwise favorable rates inch upward in the course of the delay.
Today, lenders are required to utilize appraisal management companies (AMCs), to hire appraisers, paying them about $200 per assignment, often less, notwithstanding that the going rate for an appraisal is about $450 and this is the amount charged to borrowers. Simple math demonstrates that less than half of the appraisal fee is finding its way to the appraiser. Consequently, the quality and timeliness of appraisals sometime suffer.
What are borrowers to do (particularly since an incomplete appraisal is not a protection afforded under the Financing contingency clause of the standard FAR/BAR contract)?
- Borrowers should request that the appraisal be ordered as soon as possible, once application is made. The response of the lender will vary depending on the lender’s (and their wholesaler’s) policies and protocols, and the type of loan (i.e., conventional, VA, FHA, etc.)
- Borrowers will be asked to pay the full cost of the appraisal before it is ordered, so be ready to pay the appraisal fee, up front and in full
- Generally, the earliest an appraisal can be ordered is after the lender’s Loan Estimate (“LE”) has been prepared by the lender, delivered to the borrower and receipt acknowledged by the lender; so borrowers need to timely reply to all lender inquiries
- More often, however, the lender will wait until all of the documentation supporting the loan application (i.e., pay stubs, bank statements, tax returns, etc.) has been collected from the borrower, and a sense of the viability of the loan determined; so timely submit all requested documentation as quickly as it can be assembled
Mindful of the potential for delays, how can a borrower assist in obtaining a Loan Commitment within the Loan Commitment Period prescribed in the Financing contingency of the Contract? The simple answer is to timely produce any and all requested documentation, and request that the lender order the appraisal as early on in the process as possible (and be prepared to pay the appraisal fee in full up front). Otherwise, the borrower is left to push and prod the lender (without being a nuisance, if possible), to be sure the lender’s processing department is watchful of and meeting the deadlines of the contract.
In the event the expiration of the Loan Commitment Period is approaching, it would be prudent to arrange for an Addendum to Contract extending the Financing contingency date before it expires. As always, we suggest that you contact your local real estate attorney should you have any questions regarding the financing of residential real estate.
Berlin Patten Ebling, PLLC
Article Authored by Mark Hanewich, Esq. firstname.lastname@example.org
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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