Bank Won't Close Due to FEMA Disaster Designation

Member since 2024 · 29 posts · 6 votes

Hello to all,

Need some lending advice.

Was supposed to close on a property on Thursday, with a Fannie Mae conventional loan. Had already signed etc. Bank was supposed to fund Thursday and official closing Friday. On Thursday the lender said they won't fund due to the property being in LA County and therefore a FEMA designated disaster area. The property is nowhere near any of the fires, but the bank won't budge until all fires are completely extinguished and a after disaster property inspection is done! There are no fires within a 10 mile radius of the property!

Is this normal? Or should we be looking for a different lender?

Seller is understandably getting really upset, because what the bank is asking for could take weeks and we were already supposed to have closed.

Any advice

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Patrick Roberts

Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes

Very normal. It's a moratorium due to the disaster. Once the disaster is over, someone from the lender will verify the structure wasnt damaged and then proceed with the funding. Happens just about every year in the Southeast with hurricanes- I usually spend the day after the storm driving around taking pics or coordinating inspections of properties so that my borrowers can close. Changing lenders wont help - this will be the case for almost every lender.

Call your insurance company and confirm that a binder is in place for your insurance for this deal. If not, you may have bigger problems than the funding moratorium.

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Patrick Roberts
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1y
Very normal. It's a moratorium due to the disaster. Once the disaster is over, someone from the lender will verify the structure wasnt damaged and then proceed with the funding. Happens just about every year in the Southeast with hurricanes- I usually spend the day after the storm driving around taking pics or coordinating inspections of properties so that my borrowers can close. Changing lenders wont help - this will be the case for almost every lender.
Call your insurance company and confirm that a binder is in place for your insurance for this deal. If not, you may have bigger problems than the funding moratorium.
6 Reply
Elias HalvorsonBusiness Member
HI · Member since 2024 · 225 posts · 130 votes
1y
Quote from @Leah Miller:

Hello to all,
Need some lending advice.
Was supposed to close on a property on Thursday, with a Fannie Mae conventional loan. Had already signed etc. Bank was supposed to fund Thursday and official closing Friday. On Thursday the lender said they won't fund due to the property being in LA County and therefore a FEMA designated disaster area. The property is nowhere near any of the fires, but the bank won't budge until all fires are completely extinguished and a after disaster property inspection is done! There are no fires within a 10 mile radius of the property!
Is this normal? Or should we be looking for a different lender?
Seller is understandably getting really upset, because what the bank is asking for could take weeks and we were already supposed to have closed.
Any advice
Aloha Leah,

this is very common as the other lender stated above. Anytime there are hurricanes predicted to hit a state in the area you are closing or fires, all lenders will pause funding/closing. They want to ensure against potentially lending on a property which may be destroyed/badly damaged.
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Doug Smith
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
1y
That is very standard. Our Florida mortgage practice was basically shut-down for 4 weeks due to Hurricanes Helene and Milton. It really sucked, but we had to have "reinspections" done on most of our deals in progress due to those storms. I feel ya, but it's a normal and customary practice.
1 Reply
Trevor Finn
Real Estate Consultant · Columbia, MD · Member since 2017 · 160 posts · 55 votes
1y
Hi @Leah Miller,
That's a frustrating situation, and unfortunately, it's not uncommon. Lenders often have strict policies when a property is in a FEMA-designated disaster area to protect their risk, even if the property isn't directly impacted. You can look into switching to a local credit union or portfolio lender, as they tend to be more flexible with regional policies. Another step is to ask your current lender if an expedited post-disaster inspection can be arranged to speed things up. Additionally, you could also check with your insurance provider to confirm there's no active risk and provide that documentation to the lender as reassurance. Don't give up!
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Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
Ok, just wanted to make sure this was normal procedure. Thank you all for your responses.
0 Reply
Justin Landesman
Lender · Los Angeles, CA · Member since 2015 · 35 posts · 21 votes
1y
Very normal. We are seeing much longer wait times on purchases to be cleared for disbursing funds than refinances. I hope your deal and lender can fund soon! If it is a larger bank/mortgage broker, you should be fine.
0 Reply
Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
Quote from @Justin Landesman:

Very normal. We are seeing much longer wait times on purchases to be cleared for disbursing funds than refinances. I hope your deal and lender can fund soon! If it is a larger bank/mortgage broker, you should be fine.

@Justin Landesman Curious, have any in Los Angeles City funded since Jan 8 when Los Angeles was designated as a disaster area by FEMA?
0 Reply
Jeffrey BlackmanPro Member
Lender · Chicago, IL · Member since 2017 · 107 posts · 34 votes
1y
@Leah Miller, unfortunately, you'll need to have the property reinspected. I once had a closing in the Florida panhandle scheduled for an afternoon. At noon, the President declared a disaster area for the county because of a hurricane that had recently come through. We couldn't close and had to have (and pay for) a re-inspection, even though the hurricane did not come anywhere close by. Had we scheduled the closing in the morning, there would not have been an issue.
The only potential upside is that a disaster area declaration triggers changes in mortgage rules that could beneficial to the buyer.
0 Reply
Jeff S.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
1y
I had this exact conversation with a borrower just a few hours ago, and it surprised us both. We’re not used to seeing emergency declarations as frequently as they do in Florida.

Our borrower is a local rehabber with a property scheduled to be funded today and close tomorrow. However, the buyer's bank refused to fund the loan, stating they needed to conduct a full inspection—inside and out—to confirm the property still exists. He mentioned the distance to the nearest fires (about 20 miles), but the bank isn’t budging. Why they need to inspect the interior when the exterior is pristine remains a mystery, but we don’t make the rules. It’s also unclear if they plan to order another appraisal. Maybe someone here knows?

I suppose this is routine for East Coast lenders. Even though we live in earthquake country, this was a new experience for us.
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Justin Landesman
Lender · Los Angeles, CA · Member since 2015 · 35 posts · 21 votes
1y
Quote from @Leah Miller:

Quote from @Justin Landesman:

Very normal. We are seeing much longer wait times on purchases to be cleared for disbursing funds than refinances. I hope your deal and lender can fund soon! If it is a larger bank/mortgage broker, you should be fine.

Yes, our lending partners have sent us a list of zip codes that are affected/been put on hold. The zip code list does not seem to be exactly the same between the lenders but similar. Many purchase deals in the city/county of Los Angeles are still going through already. One of the main issues is insurance companies NOT insuring many of these areas. Without insurance NO BANK will close. Make sure that is not an issue on your deal.

@Justin Landesman Curious, have any in Los Angeles City funded since Jan 8 when Los Angeles was designated as a disaster area by FEMA?

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Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
@Justin Landesman
Insurance has been bound for weeks already so that shouldn't be an issue.
0 Reply
Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
Quote from @Jeffrey Blackman:

@Leah Miller, unfortunately, you'll need to have the property reinspected. I once had a closing in the Florida panhandle scheduled for an afternoon. At noon, the President declared a disaster area for the county because of a hurricane that had recently come through. We couldn't close and had to have (and pay for) a re-inspection, even though the hurricane did not come anywhere close by. Had we scheduled the closing in the morning, there would not have been an issue.
The only potential upside is that a disaster area declaration triggers changes in mortgage rules that could beneficial to the buyer.

@Jeffrey Blackman what upside could there be in mortgage rules for the buyer? Sounds interesting.
0 Reply
Jeffrey BlackmanPro Member
Lender · Chicago, IL · Member since 2017 · 107 posts · 34 votes
1y
Quote from @Leah Miller:

Quote from @Jeffrey Blackman:

@Leah Miller, unfortunately, you'll need to have the property reinspected. I once had a closing in the Florida panhandle scheduled for an afternoon. At noon, the President declared a disaster area for the county because of a hurricane that had recently come through. We couldn't close and had to have (and pay for) a re-inspection, even though the hurricane did not come anywhere close by. Had we scheduled the closing in the morning, there would not have been an issue.
The only potential upside is that a disaster area declaration triggers changes in mortgage rules that could beneficial to the buyer.

@Jeffrey Blackman what upside could there be in mortgage rules for the buyer? Sounds interesting.

Hi Leah, as you might imagine, most of the benefits focus on individuals and properties directly impacted by the disaster. They could include things like waivers for documents and appraisals, relaxation of underwriting standards and money to fund repairs.
However, there are benefits for people who just live in the areas, but aren't directly impacted. For example, the FHA will all 100% financing on a purchase anywhere in the country, not just in the disaster area, for someone residing in a disaster area at the time of the disaster, whether they were a homeowner or renter. I believe you have 12 months after the declaration to qualify. Additionally, Fannie Mae and Freddie Mac will sometimes temporarily suspend the income cap on their HomeReady and HomePossible programs, which allow purchases with 3% down. Normally, you need to earn no more than 80% of the area median income to qualify for those programs.
Speak with your banker or broker and good luck!
0 Reply
Justin Landesman
Lender · Los Angeles, CA · Member since 2015 · 35 posts · 21 votes
1y
Quote from @Leah Miller:

@Justin Landesman
Insurance has been bound for weeks already so that shouldn't be an issue.

It might have been bound but many insurance companies have put those new policies on hold if the purchase has not happened due to the disaster and letting the mortgagee(lender) know that the policy is on hold. Just make sure that is not the hold up. If not, it's just a matter of waiting for the lender to start lending in that area again.
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Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 500 votes
1y
This is normal. It varies by lender from what I've seen as to when they decide they will wait to close.
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Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
So, we found a California based lender that we started working with, and got our initial approval with a few conditions (documents etc.) that they need, no big hurdles.
Their rate is lower than the original bank. About a 10k points price difference.
Today, after the rain in Los Angeles the first bank sent us ready to close!
I personally would rather just continue with the second bank, why go back to the first one. Loan officer and Realtors understandably want to just close and be done with it.
What say you?
0 Reply
Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
Forgot one detail the new California based lender committed to funding as long as the property isn't in an evacuation warning area.
0 Reply
Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
1y
$10K savings to you or higher cost to you? And what timeline can lender #2 close in? One day, one week one month?
Lender #1, what do they need for clear to close? Can it be wrapped up by the end of the week?
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Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
Lender #1, is completely ready to go. The 10k is the difference in the points.
With lender 1 will cost 10k more in points.
Lender #2 is kind of unknown. Until we can actually close probably would be early next week earliest.
0 Reply
Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
1y
For $10K and a lower rate I'd be willing to consider delaying...but only if I knew that lender two was solid on closing in a relatively short timeframe. This is why I use a loan broker...I want his experience with who can do what they say and who is a delay.
Final thought is to make sure switching lenders doesn't blow a contingency and sink the closing that way.
0 Reply
Elias HalvorsonBusiness Member
HI · Member since 2024 · 225 posts · 130 votes
1y
Leah, I would give lender 1 the option to beat/match your deal. Often, they might not be able to , but they may be able to come down 5k in points, or somewhere in the middle. This way, you can ensure you’re closing and still save some money. Make sense? Happy to discuss if you’d like.

Quote from @Leah Miller:

Lender #1, is completely ready to go. The 10k is the difference in the points.
With lender 1 will cost 10k more in points.
Lender #2 is kind of unknown. Until we can actually close probably would be early next week earliest.

808-517-6416
Elias Halvorson C2 Hawaii NMLS#1697041HI Branch NMLS#1244222 585 Reviews
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
Quote from @Leah Miller:

Lender #1, is completely ready to go. The 10k is the difference in the points.
With lender 1 will cost 10k more in points.
Lender #2 is kind of unknown. Until we can actually close probably would be early next week earliest.

Hi Leah,
Why not just work with your current lender to cut the points? 9/10 the lender will drop their comp to close on it and save the deal. Realtor might also provide a credit to you to close it out and call it a day. Are you able to get an extension on closing to support the timeframe of lender B? Are they bluffing on their closing timeline? Minimum 15 days are needed to close a loan if the appraisal is already completed. If its a direct lender, you might be able to pull off a 10 day close if its a smaller lender that has very quick underwriting turn times. Still need about 3-4 days for CDs, balancing, docs, funding and recording.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
Quote from @Erik Estrada:

Quote from @Leah Miller:

Lender #1, is completely ready to go. The 10k is the difference in the points.
With lender 1 will cost 10k more in points.
Lender #2 is kind of unknown. Until we can actually close probably would be early next week earliest.

Hi Leah,
Why not just work with your current lender to cut the points? 9/10 the lender will drop their comp to close on it and save the deal. Realtor might also provide a credit to you to close it out and call it a day. Are you able to get an extension on closing to support the timeframe of lender B? Are they bluffing on their closing timeline? Minimum 15 days are needed to close a loan if the appraisal is already completed. If its a direct lender, you might be able to pull off a 10 day close if its a smaller lender that has very quick underwriting turn times. Still need about 3-4 days for CDs, balancing, docs, funding and recording.

It's better to be honest with your current lender and all parties involved in the transaction, than to risk losing your EMD and falling out with lender Bs false promises. I've seen it happen many times.
[email protected]818-269-7983
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Leah Miller
OP
Member since 2024 · 29 posts · 6 votes
1y
Thank you for your responses.
Decided to try to negotiate with the current lender.
Turns out the Seller's agent and the escrow agents were really nasty to the bank throughout the whole process. (Apparently a lot of emails back and forth, that for some reason I the buyer was not copied on). So for the past three weeks they have been badgering the bank, going so far as to call the owner of the bank and every member between the underwriter and the owner. The bank was really upset.
Kind of hard to tell them to match or I go to the other bank when they are getting messages from the seller and escrow daily that we need to close ASAP.
I can't actually push it off for too long since I don't know when the second bank will close and we removed contingencies a month ago.
Signed with the first lender and had to swallow the points.
Learned some interesting lessons along the way.
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