Well It Happened...Walking away from Earnest Money

[J. Mitchell Bernier]

Well it happened. I am having to cancel a contract due to funding issues. I went under contract on a home with a local bank that I have used for over three years and still have active loans with decide to become more restrictive. Here is what went down. 

I have a commercial loan with a balance of $90K that is secured by two separate properties that had appraised in August for a total of $180K, one for $79K and the other $101K. My plan was to use the equity in these two properties and purchase a separate property for $67K. So based on a total based on a total value of $247K, $180k +price of new property, this would put me at an LTV of 63.5% across all properties. Today the bank called and decided that they were not allowing me to use that equity and must do 20% down in cash, previously it had been 15%. My response was that I don't want to use my cash when I have that much equity, plus with times being uncertain I don't want to fall below my minimum reserves. The bank said they understood that but still wanted the cash. I then asked, "OK if I do the cash and get in a bind will you lend me money in a cash out situation?" and of course their answer was, NO. Of course those loans are locked up at 4.5% and not willing to refi them for almost double to just do the deal with another bank.

So today I canceled the contract and let the EM walk, $1k so not terrible, but stinks. However; this is just another sign that we are moving into uncertain times and that funding can dry up from banks, even ones that you have worked with in the past. So be prepared and keep your powder dry during these uncertain times.