A Sale Gone Bad. What Can I Do?

Question

The day before the closing date (May 30th) I was told that the buyer's financing could not be approved for the FHA loan due to a judgement on his credit. I am now being told by my realtor that I can not sell the house to another buyer until the 1st buyer releases the escrow money. However, he is refusing to release the 2k in escrow. He believes that the judgement will be removed any day now and he will be cleared for the FHA loan. Qualified Buyer As a flipper, I was counting on a banker's approval letter as confirmation that the proposed buyer's credit had been reviewed and (that for that moment) they qualified for the loan. How can I get my house released so that I can sell to another Buyer? Pre-qualify the Offer Has anyone heard of running prospective buyers through a seller's choice of a pre-determined bank to get a solid review of their credit? I no longer consider prequalified letter from bank as something to be trusted. If I had known that there was issues with his credit, I would not have accepted his offer. Suggestions? I am wanting to get this home sold. Has anyone else experience this when selling (in Texas)? How can I handle this situation better? Thanks in advance for the advise.

Greg H. · Answer

Texas answer. While this title company would not close while the earnest money is pending, another will. Cancel and put the property back on the market and move forward. Additionally, send a demand letter to the buyer for the earnest money if they failed to obtain approval within the required period in the contract. Very dissapointing answer from your agent

Jay Hinrichs · Answer

EXACTLY I think this would work in any state.. simply open escrow at another title company..

Jan B. · Answer

Mike, the property incurred labor delays that took the project from 9 weeks to 5 1/2 months. The offer on the house came in at $182,900. My total costs for the project was $155,100. (House=$50k, Materials and labor=$92k, and closing costs). The FHA appraisal came in at 150k. It seems so wrong for an appraiser to have such power and that their opinion stands for the next buyer should the sale falls through even if comps rise in in the area for the a spring/summer market.

Jan B. · Answer

Wayne, that is an interesting thought for the judgment. I just wish they had been straight forward with me on this. So much time wasted. This area has so far only generated FHA offers. It could be that the demographics for the area is lower income families. I am not sure I would ever accept an FHA offer again. I was told by my realtor that the appraisal is final for FHA financing and follows the property no matter who buys it going forward with FHA financing. This has been a vulnerability that I was not aware of. I would have assumed that if the sale fell through, that new (hopefully higher) comps could be obtained with a new appraisal. There is always something to learn. Thanks, Gregg, for the response. I'm glad to know that I'm not stuck. It did sound crazy to me that I would be left with no recourse but to wait and wait and wait for the next three months to be able to sell. The agent thought that I would have to take them to court to get my house available for another buyer. Good to know I can go with another title company and get resolution.

Jan B. · Answer

Thanks for all the responses. The latest is that we did receive word today that the buyer received final decline letter from the mortgage bank. My realtor has received several offers on the house (all FHA) but is asking them to convert to conventional for the pre-approval. We are hoping that the new appraisal under a conventional loan will get me closer to making a profit instead of losing $$$.

Jim Cummings · Answer

@Jan B.. Think you'll find the FHA Appraisal has a 6-month life span, so any new FHA Offer is subject to the previous FHA Appraisal.

Greg H. · Answer

Agreed that the judgment will not go away as far as his underwriter is concerned. However, in Texas it would not attach to the property if it it his homestead. In Texas, only IRS, Child support, mechanics liens(only if it had to do with that property) and a few other would attach due to our homestead protections

Rob Hoffman · Answer

My first deal as an agent I was representing the buyer. The seller backed out last minute because the tenant was threatening to file lawsuit. Seller fired his agent midway thru escrow and we couldnt reach seller to release EMD. Finally escrow got ahold of seller and EMD was released. Terrible first deal.Here in California, at least the Bay Area, a seller wouldnt even consider an offer if it wasnt accompanied by a fully underwritten preapproval.

Jason Lavender · Answer

I’m dealing with the same situation of FHA appraisal coming in low. To top it off I got hit with a mandatory second appraisal because it was inside 180 days of purchase, I was told from purchase date but is actually from the date the deed is recorded, missed it by 4 days. Now second appraisal is coming and of course the lower of the 2 appraisals is what is used. I was told I could contest it but that takes time, it’s only $7k difference so I’m offering seller finance on the $7k to try and wrap this up. The last flip I sold I swore I wouldn’t offer my next one to an FHA buyer because I had issues, sure enough though here I am similar situation. The lower price point house is hard to disqualify FHA financing since it will narrow the buyer pool to much. Definitely frustrating.

Jan B. · Answer

Josh, thanks for the info. I'll check and see which case applies for me in the contract.